Introduction
Section 32A of the Insolvency and Bankruptcy Code, 2016 (“Code”), introduced significant protections for corporate debtors undergoing insolvency resolution. Despite this, questions have arisen about the National Company Law Tribunal’s (“NCLT”) authority to order the release of properties attached by the Directorate of Enforcement (“ED”), as doing so directly impacts ongoing proceedings under the Prevention of Money Laundering Act, 2002 (“PMLA”). This tension between insolvency law and anti-money laundering regulations presents a complex legal challenge, raising issues about the jurisdictional boundaries of the NCLT and the role of the ED in such cases.
Evolution and Significance of Section 32A
Before the introduction of Section 32A in the Code, there was ambiguity surrounding the attachment of a corporate debtor’s assets post-resolution approval. Section 32A clarified that once a resolution plan is approved, the corporate debtor is exempt from any penalties or liabilities for actions taken before the commencement of the Corporate Insolvency Resolution Process (“CIRP”). This includes the automatic release of any attachments, seizures, or confiscations of assets, eliminating the need for the debtor or resolution professional to initiate new legal proceedings to halt wrongly initiated actions, such as those under the PMLA. The Hon’ble Delhi High Court in Nitin Jain Liquidator PSL Limited v. Directorate of Enforcement[1] further clarified that Section 32A applies from the moment the Adjudicating Authority allows the sale of the corporate debtor as a going concern, rendering any enforcement actions by the ED ineffective thereafter. The provision operates as a non-obstante clause, overriding conflicting laws, and reinforcing the finality of approved resolution plans.
The Hon’ble Bombay High Court recently reaffirmed a fundamental principle of the IBC, emphasizing that once the NCLT approves a resolution plan, the corporate debtor is automatically relieved of any liabilities arising from offenses committed prior to the initiation of the CIRP. This ruling reinforces the requirement that a corporate debtor’s assets must be released upon the approval of the resolution plan, offering clarity on the interaction between insolvency proceedings and the enforcement of pre-insolvency liabilities under various legal frameworks.
