In the matter of Shiv Charan and Ors. v. Adjudicating Authority and Anr., a division bench of the Hon’ble Bombay High Court assessed the legality of continuing an attachment levied on the properties of the Corporate Debtor under the provisions of the, Prevention of Money Laundering Act, 2002 (PMLA) in the teeth of the provisions of Section 32A of the Insolvency and Bankruptcy Code, 2016 (Code).
Upholding the decision of the National Company Law Tribunal (NCLT), Mumbai Bench directing to release the attached properties of the corporate debtor after approval of the resolution plan, the High Court referred to the decision of the hon’ble Supreme Court of India in Manish Kumar v. Union of India, and reiterated the intent and object of Section 32A of the Code which confers immunity upon a corporate debtor with respect to its liability arising in relation to an offence committed prior to the CIRP. While holding so, the High Court however clarified that the such immunity has limited applicability and only extends to the corporate debtor and the new management of the corporate debtor. The same does not extend to the erstwhile management / promoters of the corporate debtor and any other persons / accused with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence.
In view of the aforesaid, the High Court was of the opinion that clause (i) in the Explanation to section 32A (2) of the Code which explicitly stipulates that an ‘action against the property’ of the corporate debtor, from which immunity would be available, ‘shall include attachment…, confiscation of such property under law’ encompasses within its ambit the attachments made by the Directorate of Enforcement (ED) under the PMLA. Hence, it was observed that the Ld. NCLT had accurately applied section 32A (2) read with the clause (i) in the explanation to Section 32A (2) of the Code to hold that upon the approval of the resolution plan any prosecution of the corporate debtor or its properties shall come to an end.
Further, to ensure the rule of law stipulated under section 32A of the Code, the Court observed that once the ingredients for application of the said provision are met, quasi-judicial bodies, including the relevant authority adjudicating the matters filed under the PMLA, must take judicial notice of the same, and release the attached properties on their own.
The decision brings a fine balance between the powers and interests of the ED given under the PMLA vis-à-vis the immunity conferred to a corporate debtor and its assets under the Code. It clarifies the broad scope of Section 32A while also ensuring that the benefit of immunity be granted only when the conditions stipulated under the said section are duly met. Reinstating the clean slate theory, the decision prevents the successful resolution applicants of corporate debtors from bearing the brunt of such offences which were undertaken prior to commencement of the CIRP.