Bombay High Court held that Section 32A of the IBC provides automatic immunity from prosecution and attachment for corporate debtors with approved resolution plans.
Bombay High Court Division Bench of Justice B.P. Colabawalla and Justice Somasekhar Sundaresan was hearing a petition and held that Section 32A of the Insolvency and Bankruptcy Code, 2016, provides automatic immunity from prosecution and attachment for corporate debtors upon approval of their resolution plans, overriding conflicting provisions of other laws such as the Prevention of Money Laundering Act, 2002, and thereby mandating the release of attached properties.
In this judgment, the High Court addressed the implications of Section 32A of the Insolvency and Bankruptcy Code, 2016 (IBC) for corporate debtors, their assets, and the enforcement actions taken by agencies such as the Directorate of Enforcement (ED). The court considered two writ petitions together, filed in relation to the corporate debtor, DSK Southern Projects Private Limited, which underwent a Corporate Insolvency Resolution Process (CIRP) initiated on December 9, 2021. The National Company Law Tribunal (NCLT), Mumbai, approved the resolution plan on February 17, 2023.
Prior to the CIRP, the corporate debtor and its promoters faced multiple FIRs, leading to the ED attaching assets worth Rs. 32,51,10,596 under the Prevention of Money Laundering Act, 2002 (PMLA). The Resolution Applicants sought to quash these attachments and related complaints, while the ED contested the NCLT's jurisdiction in invoking Section 32A of the IBC, arguing it conflicted with the PMLA's objectives.
The High Court evaluated the core issue of whether the NCLT had the authority to release attached properties under Section 32A, which mandates the cessation of attachments once a resolution plan is approved. The ED argued that the NCLT overstepped its jurisdiction and that Section 32A could not override the ED’s powers under the PMLA. Conversely, the Resolution Applicants contended that Section 32A, being a non-obstante clause, superseded conflicting provisions of the PMLA and mandated the release of assets upon approval of the resolution plan.
The High Court concluded that Section 32A of the IBC provides automatic immunity from prosecution and attachment for corporate debtors with approved resolution plans, given a change in management. It ruled that the NCLT’s jurisdiction under Section 60(5) of the IBC included interpreting Section 32A, thus validating the NCLT's orders. Consequently, the court directed the ED to release the attached properties as per the approved resolution plan.
The High Court affirmed the NCLT's authority to direct the ED to lift attachments on the corporate debtor’s properties, reinforcing the legislative intent to facilitate the resolution process and enabling corporate debtors to restart operations free from previous encumbrances. This decision underscored the primacy of Section 32A of the IBC in providing immunity to corporate debtors from prior offences and protecting their assets from attachment under other laws.
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