Corporate Debtor Immune From Prosecution Under PMLA Post Approval Of Resolution Plan: Delhi High Court

Brief Facts

On 26.07.2017 the National Company Law Tribunal (NCLT) initiated corporate insolvency resolution process (CIRP) against Bhushan Power and Steel Limited (BPSL/ Corporate Debtor/ Petitioner Company) under section 7 of IBC. JSW Steel Ltd. emerged as the successful resolution applicant.

Meanwhile, on 05.04.2019, the CBI registered an FIR against the BPSL, its Chairman, Directors and other persons in respect of offences committed under sections 120-B r/w 420, 468, 471 & 477A of the IPC & Section 13(2) r/w 13(1) (d) of the Prevention of Corruption Act. On 25.04.2019, the Enforcement Directorate (ED) recorded the Enforcement Case Information Report (ECIR) against the Corporate Debtor.

On 05.09.2019, the NCLT conditionally approved the resolution plan of JSW under Section 31 of the IBC, but did not grant protection from liability of the Petitioner Company for the acts or omissions of the previous management for the period prior to approval of the resolution plan.

On 10.10.2019, a Provisional Attachment Order was passed under Section 5(1) of the Prevention of Money Laundering Act, 2002 (PMLA) provisionally attaching assets of the Corporate Debtor. On 14.10.2019, NCLAT by an interim order stayed the Provisional Attachment Order and prohibited the ED officers from attaching any property of BPSL without prior approval of the NCLAT.

On 17.01.2020 the ED filed a prosecution complaint arraying the Corporate Debtor as an accused along with the erstwhile Chairman and Managing Director as well as other Director for alleged offence of money laundering in relation to bank fraud of Rs. 47,204 Crores.

Thereafter, on 17.02.2020 the NCLAT declared the attachment of assets of the 'Corporate Debtor' illegal and without jurisdiction in view of the Section 32A of IBC.

The ED preferred an Appeal to the Supreme Court challenging the order of the NCLAT quashing the provisional attachment order. The Supreme court did not express any opinion on the interpretation of Section 32A (2) of IBC or on the powers of the ED to attach the property of the Corporate Debtor which is undergoing the CIRP.

The Petitioner Company filed the petition under Article 226 of the Constitution r/w. Section 482 of the CrPC, seeking to quash the ECIR and the order dated 17.01.2020.

Arguments

Dr. Abhishek Manu Singhvi and Mr. Vikas Pahwa, senior counsels appearing on behalf of the Petitioner Company stated that under Section 32A of the IBC, a Corporate Debtor's liability for offences committed before the commencement of CIRP ceases upon approval of the resolution plan. They stated that since the provisional attachment order was issued after the resolution plan was approved, the resolution plan may prevail. They further argued that under Section 8(8) of the PMLA, the confiscated properties can be restored to the claimant.

Mr. Zoheb Hossain, Special Counsel for the Respondent No. 2/ Directorate of Enforcement stated that as per Section 32A (1) of the IBC, a Corporate Debtor cannot be prosecuted for an offence from the date the Resolution Plan has been approved. However, as the plan is under challenge before the Supreme Court, the role of the Corporate Debtor's previous management money laundering case must be examined. He stated that the second proviso to Section 32A(1) allows prosecution of the erstwhile Promoters/Directors notwithstanding the fact that the liability of the Corporate Debtor may have ceased.

Observations

The court observed that once a resolution plan has been approved by the adjudicating authority under Section 31 of IBC and the conditions specified in Section 32A of the IBC are met, the Corporate Debtor shall not be prosecuted for an offence committed prior to the commencement of the CIRP. However, any erstwhile officer of the Corporate Debtor who was in charge of, or responsible for the conduct of its business or associated with it in any manner or directly or indirectly involved in the offence prior to the commencement of CIRP shall continue to be prosecuted and punished notwithstanding that the Corporate Debtor's liability has ceased.

The court clarified that the role of the Corporate Debtor would be examined in the trial of the erstwhile promoters/directors of the Petitioner Company as it relates to the commission of the offence by the Petitioner Company in its earlier avatar as it was under the erstwhile management, when the offence was committed, more so when there are allegations under Section 70 of the PMLA.

The court held that in view of the mandate under Section 32A(1) of the IBC, the Petitioner Company, having undergone a successful resolution process under Section 31 of the IBC, shall not be prosecuted for the offences committed prior to the commencement of the CIRP.

The court party allowed the writ petition with the above clarification. It set aside the order dated 17.01.2020 to the extent of the Petitioner Company. It clarified that the order would be subject to the final outcome of the challenge to the approval of the resolution plan pending before the Supreme Court.

Case Title: Bhushan Power & Steel Limited vs. Union of India & Anr.

Citation: 2025 LiveLaw (Del) 148

Case Number: W.P.(CRL) 1261/2024

Counsel for the Petitioner: Through: Mr. Abhishek Manu Singhvi, Sr. Adv., Mr. Vikas Pahwa, Sr. Adv., Mr. Raunak Dhillon, Ms. Madhavi Khanna, Ms. Isha Malik, Ms. Niharika Shukla, Advocates

Counsel for the Respondent: Mr. Zoheb Hossain, Spl. Counsel with Mr. Manish Jain, SPP with Mr. Vivek Gurnani, SC with Mr. Kartik Sabharwal, Mr. Pranjal Tripathi and Mr. Kaushik Maurya, Advocates. Mr Satya Ranjan Swain (SPC), Advocate for Respondent no. 1/UOI

Date of Order: 30.01.2025