Case Note & Summary
The case arose from two writ petitions filed under Article 227 of the Constitution of India read with Section 482 of the Code of Criminal Procedure, 1973, challenging the order dated 20 August 2021 of the Special Judge, CBI, Greater Bombay. The petitioners were Dewan Housing Finance Corporation Limited (DHFL) and Piramal Capital & Housing Finance Limited, the successful resolution applicant whose resolution plan had been approved under the Insolvency and Bankruptcy Code, 2016. The impugned order had rejected DHFL's application under Section 32A of the IBC for discharge from CBI Special Case No. 830 of 2021, while permitting prosecution of the corporate debtor through its erstwhile directors. DHFL, a non-banking financial company, faced governance concerns and default, leading RBI to supersede its board on 20 November 2019 and file a company petition initiating corporate insolvency resolution process (CIRP) on 29 November 2019. The NCLAT admitted the petition on 3 December 2019, commencing a moratorium and confirming the appointment of an administrator. Subsequently, CBI registered an FIR on 7 March 2020 against DHFL, its erstwhile directors, and others for alleged offences under the Indian Penal Code and the Prevention of Corruption Act, 1988, relating to transactions before the CIRP. A chargesheet was filed on 25 June 2020. In the meantime, the administrator invited resolution plans, and Piramal Capital's plan was approved by the Committee of Creditors with 93.65% voting share. The NCLAT approved the resolution plan on 7 June 2021. DHFL then applied for discharge under Section 32A IBC, which the CBI court partly allowed by rejecting discharge but permitting prosecution through erstwhile directors. The main legal issue was whether Section 32A(1)(a) IBC absolves the corporate debtor of all pre-CIRP criminal offences from the date of approval of the resolution plan, notwithstanding pending appeals against the Section 31 order. The petitioners argued that the conditions under Section 32A were satisfied: the resolution plan was approved, it resulted in a change of management (new board appointed after reverse merger of Piramal Capital into DHFL on 30 September 2021), and the new management was not a promoter or related party. They relied on the Supreme Court's decision in Manish Kumar v. Union of India, which upheld the validity of Section 32A. The CBI contended that pendency of appeals against the approval order meant the resolution plan was not final, and immunity should not operate until those appeals were decided. The court examined Section 32A and the Manish Kumar judgment, holding that the provision creates an absolute immunity once a resolution plan is approved and leads to a change in management to an unrelated party. The immunity is effective from the approval date and is not conditional upon the finality of the approval order; appeals do not suspend its operation. The court further held that the corporate debtor cannot be prosecuted even through its erstwhile directors, as that would defeat the statutory objective of attracting new resolution applicants. The court set aside the impugned order and discharged DHFL from the CBI case, while clarifying that individual accused persons may still face prosecution. The writ petitions were allowed.
Headnote
A) Insolvency Law - Corporate Criminal Liability - Section 32A of Insolvency and Bankruptcy Code, 2016 extinguishes corporate debtor's liability for pre-CIRP offences upon approval of resolution plan resulting in change of management/control not to promoter/related party - Held that once conditions satisfied, immunity is absolute and takes effect from date of approval, irrespective of pendency of appeals against Section 31 order; corporate debtor cannot be prosecuted even through erstwhile directors (Paras 14-18, 20-22). B) Criminal Procedure - Prosecution of Corporate Entities - Section 32A IBC mandates discharge of corporate debtor from criminal cases post-approval of resolution plan; prosecution may continue only against individuals responsible for the offence - Court held that allowing prosecution through erstwhile directors would defeat purpose of immunity; such individuals may be tried separately (Paras 16-17, 20-21). C) Constitutional Law - Supervisory Jurisdiction - Article 227 of Constitution of India read with Section 482 of Code of Criminal Procedure, 1973 - High Court exercised supervisory jurisdiction to quash order of CBI court as it was contrary to law and led to miscarriage of justice (Para 23).
Issue of Consideration
Whether Section 32(1)(a) of IBC lays down a direction that Corporate Debtor would be absolved of all criminal offences committed prior to commencement of CRIP, from the date of approval of Resolution Plan, although appeals against Section 31 order of the IBC were pending before the NCLAT?
Final Decision
The writ petitions were allowed. The impugned order dated 20 August 2021 was set aside. DHFL, as the corporate debtor, was discharged from CBI Special Case No. 830 of 2021. The prosecution of individual accused (erstwhile directors) may continue separately.
Law Points
- Section 32A of Insolvency and Bankruptcy Code
- 2016 extinguishes criminal liability of corporate debtor for offences committed prior to CIRP commencement once resolution plan approved under Section 31 and results in change in management/control not to promoter/related party
- pending appeals against approval order do not affect immunity
- prosecution may continue against individuals responsible for the offence.
