Section 32A IBC shields resolution applicants from PMLA actions after plan approval, Enforcement Directorate attachment invalid

NCLAT held that Section 32A of IBC creates an impregnable wall protecting resolution applicants from PMLA enforcement actions after resolution plan approval. The Adjudicating Authority erred by not extending Section 32A(2) protection to lift Enforcement Directorate's attachment over corporate debtor's assets. NCLAT relied on SC precedent in Manish Kumar case upholding Section 32A's legislative scheme, which grants immunity to corporate debtors and their property to enable new management's clean break from past liabilities. The resolution applicant was entitled to protection under Section 32A. Appeal allowed.

---

---

Issues Involved:
1. Approval of the Resolution Plan.
2. Refusal to release assets attached by the Enforcement Directorate (ED) under the Prevention of Money Laundering Act (PMLA).
3. Application of Section 32-A of the Insolvency and Bankruptcy Code (IBC), 2016.
4. Validity of the Adjudicating Authority's findings in paragraph 60 of the impugned order.
5. Jurisdiction and powers of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) regarding the release of attached properties.

Detailed Analysis:

1. Approval of the Resolution Plan:
The Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor commenced on 08.10.2021. The Resolution Professional (RP) conducted due diligence and shared the Resolution Plan with the Committee of Creditors (CoC), which approved the plan with a 100% vote share on 18.10.2023. The RP filed an application for approval of the Resolution Plan. The Adjudicating Authority approved the Resolution Plan submitted by the Successful Resolution Applicant (SRA) but refused to grant the prayer for the release of assets attached by the ED.

2. Refusal to Release Assets Attached by ED:
The SRA's Resolution Plan proposed the vacation of charges by the ED and other authorities. However, the Adjudicating Authority refused to grant this prayer, stating that it would be for the SRA to resort to appropriate proceedings to seek remedy. The Adjudicating Authority observed that the properties already attached by the ED under the PMLA would not be released and that the SRA would not be entitled to any criminal consequences for offenses committed by the ex-management of the Corporate Debtor prior to the commencement of the CIRP.

3. Application of Section 32-A of IBC, 2016:
The central issue in the appeal was the application of Section 32-A of the IBC, which provides protection to the Resolution Applicant from any liability of the Corporate Debtor for offenses committed prior to the commencement of the CIRP. The SRA argued that Section 32-A should also cover the property/assets of the Corporate Debtor attached under the PMLA. The Adjudicating Authority, however, refused to extend this protection, relying on the judgment of the Delhi High Court in Rajiv Chakraborty vs. Directorate of Enforcement, which stated that the power to attach under the PMLA would not fall within the ken of Section 14(1)(a) of the IBC.

4. Validity of the Adjudicating Authority's Findings in Paragraph 60:
The Adjudicating Authority's findings in paragraph 60 were challenged by the SRA. The Adjudicating Authority held that the SRA would not be entitled to any relief except those available under Section 31(1) and 32-A of the IBC. The Authority also noted the absence of an affidavit from the SRA stating eligibility under Section 29A, as required by Section 30(1) of the IBC. The SRA was given an opportunity to file this affidavit in the interest of justice.

5. Jurisdiction and Powers of NCLT and NCLAT:
The judgment of the Bombay High Court in Shiv Charan and Ors. vs. Adjudicating Authority under the PMLA was relied upon by the SRA. The Bombay High Court held that once a Resolution Plan is approved, no action can be taken against the properties of the Corporate Debtor in relation to an offense committed prior to the commencement of the CIRP. The NCLT has the power to direct the ED to release its attachment in relation to the attached properties of the Corporate Debtor. The NCLAT found that the Adjudicating Authority erred in not extending the benefit of Section 32-A to the SRA.

Conclusion:
The NCLAT allowed the appeal, set aside the findings recorded in paragraph 60 of the impugned order, and extended the protection of Section 32-A to the SRA. The SRA was entitled to the relief of lifting the attachment by the ED over the assets of the Corporate Debtor. The appeal was allowed, and the findings denying the protection of Section 32-A were set aside.

---