2024 (12) TMI 1248 - HC - IBC

Corporate debtor gains immunity from pre-CIRP fraud prosecution after resolution plan approval under Section 32A IBC

Gangakhed Sugar And Energy Ltd. Versus Central Bureau Of Investigation & Ors.

Delhi HC quashed FIR against corporate debtor under Section 32A IBC immunity provisions. Court held that once resolution plan is approved and new ... Exercise of inherent powers of this Court under Section 482 of the CrPC (now Section 528 of the BNSS) - Immunity from prosecution under Section 32A of the Insolvency and Bankruptcy Code (IBC) - Lack of territorial jurisdiction - disclosure of offences in the FIR. Exercise of inherent powers of this Court under Section 482 of the CrPC (now Section 528 of the BNSS) - HELD THAT:- The Hon’ble Supreme Court, in Neeharika Infrastructure [2021 (4) TMI 1244 - SUPREME COURT], reiterated the principles to be followed while quashing an FIR and held 'When a prayer for quashing the FIR is made by the alleged accused, the Court when it exercises the power under Section 482CrPC, only has to consider whether or not the allegations in the FIR disclose the commission of a cognizable offence and is not required to consider on merits whether the allegations make out a cognizable offence or not and the court has to permit the investigating agency/police to investigate the allegations in the FIR.' The Hon’ble Supreme Court has time and again reiterated that the power of quashing should be exercised sparingly with circumspection, in the “rarest of rare cases”. Additionally, while examining an FIR/complaint, quashing of which is sought, the Court cannot embark upon an enquiry as to the reliability or genuineness or otherwise of the allegations made in the FIR/complaint - Thus, ordinarily, the Courts are barred from usurping the jurisdiction of the police, since the two organs of the State operate in two specific spheres of activities, however, the inherent power of the Court is to secure the ends of justice or prevent the abuse of the process of law. As per the law, to invoke its inherent jurisdiction under Section 482 of the CrPC, the High Court has to be fully satisfied that the material produced by the accused is such that would lead to the conclusion that the defence is based on sound, reasonable and indubitable facts, and that the material so produced is such as would clearly defeat or negate the allegations contained in the FIR without conducting trial - Further, as per Rajiv Thapar v. Madan Lal Kapoor [2013 (1) TMI 932 - SUPREME COURT], the material placed on record has to be of such impeccable quality that would persuade a reasonable person to dismiss and condemn the accusations as false. Therefore, in order to meet the ends of justice, the High Court may be persuaded by its judicial conscience to prevent the abuse of the process of law. Immunity from prosecution under Section 32A of the Insolvency and Bankruptcy Code (IBC) - It is the case of the petitioner that the impugned FIR is liable to be quashed on merits as the same cannot exist qua the petitioner in view of Section 32A of the IBC - HELD THAT:- In Ebix Singapore Pvt. Ltd. [2021 (9) TMI 672 - SUPREME COURT] submitted a resolution plan for Educomp Solutions Ltd., a CD undergoing the CIRP under the IBC. While dealing with various legal issues, the Hon’ble Supreme Court observed that Section 32A of the IBC was introduced to provide immunity to the CD and its assets from liabilities arising out of past offenses once the resolution plan is approved. It was also observed that the said provision ensures the clean slate principle, shielding the CD and its assets from past liabilities once a resolution plan is implemented. It was further clarified that this immunity is crucial for the successful implementation of resolution plans and encourages resolution applicants to participate in the CIRP. Further, in Ajay Kumar Radheyshyam Goenka [2023 (3) TMI 686 - SUPREME COURT], the Hon’ble Supreme Court while upholding the settled position of law observed that Section 32A of the IBC ensures that the corporate debtor is freed from the past liabilities under the approved resolution plan in the event the new control is with the person/management which is not related to the person/management related to the commission of such offence. However, while stating the effect of Section 32A of the IBC on the directors of the company, it was made clear by the Hon’ble Court that the criminal liability of directors and officers of the concerned corporate debtor is not absolved and the IBC does not shield individuals from personal criminal liabilities under the Negotiable Instruments Act, 1881. Therefore, it is settled that once a company, against whom an FIR is registered, undergoes CIRP and a resolution plan gets duly approved by the NCLT, whereby, the control of the affairs of the concerned CD is taken over by a new management which is not related to the CD’s erstwhile directors/promoters who are related to the allegations of commission of such offence, the said company’s liability for an offence committed prior to the commencement of CIRP ceases and the concerned CD shall not be prosecuted for such an offence from the date the resolution plan has been approved - In the instant case, it is an admitted position of fact that the impugned FIR pertains to the allegations of commission of fraud and diversion of funds by the petitioner and its erstwhile directors/promoters during the period 2008 to 2017 which is apparent from the bare reading of the complaint and FIR. Keeping in mind the settled position of law, the admitted position of facts that the offences alleged in the complaint and the FIR pertain to the period 2008-2017, i.e., before the commencement of the CIRP; resolution plan has been approved by the learned NCLT and there has been no objection/appeal against the same; the respondent CBI has not objected or brought on record any contention to submit to the effect that the resolution applicant is related to the persons accused of commission of offences, this Court is of the view that there are cogent grounds to invoke Section 32A of the IBC - It has been ascertained that Section 32A of the IBC protects a CD and leads to extinguishment of any criminal liability of the CD if the control of the said CD goes in the hands of the new management which is different from the original/old management. This Court also deems it apposite to state that the present petition has been adjudicated only with respect to the contention of immunity from the prosecution of the CD/petitioner under Section 32A of the IBC and has neither dealt with the issues on merits of the allegations levelled in the impugned FIR nor with the issue of territorial jurisdiction. Conclusion - In view of the undisputed fact that the CIRP in regard to the petitioner company commenced on 10th October, 2019 whereas the FIR was registered on 7th February, 2023 in regard to the alleged offences committed between the year 2008 to 2017, and that the resolution plan of the CD has been approved on 17th February, 2023 by virtue of which a new management has taken over the control of the petitioner/CD; any liability for such offences shall cease against the petitioner/CD and the petitioner cannot be prosecuted for the said offences as the same were committed prior to the approval of the resolution plan. Therefore, the impugned FIR is liable to be quashed qua the petitioner. Petition allowed. Issues Involved:1. Immunity from prosecution under Section 32A of the Insolvency and Bankruptcy Code (IBC).2. Lack of territorial jurisdiction.3. Whether the FIR discloses any offence against the petitioner.Detailed Analysis:1. Immunity from Prosecution under Section 32A of the IBC:The petitioner argued that the FIR should be quashed based on Section 32A of the IBC, which grants immunity to a corporate debtor from prosecution for offences committed prior to the commencement of the Corporate Insolvency Resolution Process (CIRP), provided the resolution plan results in a change of management. The petitioner highlighted that the alleged fraud occurred between 2008 and 2017, before the CIRP commenced on 10th October 2019, and the resolution plan was approved on 17th February 2023. The court acknowledged the settled position of law that once a resolution plan is approved, the corporate debtor cannot be prosecuted for past offences if the new management is unrelated to the previous one. The court found that the petitioner met all the conditions under Section 32A and thus was entitled to immunity from prosecution. Consequently, the FIR was quashed with respect to the petitioner.2. Lack of Territorial Jurisdiction:The petitioner contended that the FIR lacked territorial jurisdiction as all material events occurred in Maharashtra. However, the court did not address this issue in detail, as the decision to quash the FIR was based on the immunity provided under Section 32A of the IBC.3. Whether the FIR Discloses Any Offence Against the Petitioner:The petitioner argued that the FIR did not disclose any offence against the new management, as the alleged fraud was committed by the erstwhile directors. The court, while not delving into the merits of the allegations, noted that the FIR pertained to offences committed before the CIRP and the change in management. The court emphasized that the power to quash an FIR should be exercised sparingly and only in the rarest of cases. However, given the statutory immunity under Section 32A, the court found it appropriate to quash the FIR against the petitioner.Conclusion:The court quashed the FIR against the petitioner based on the immunity provided under Section 32A of the IBC, as the resolution plan had resulted in a change of management. The court clarified that the quashing was limited to the petitioner and did not extend to the erstwhile directors or other accused persons. The petitioner was also directed to assist the investigating agency as required by law, without implying any prosecution. The court did not address the territorial jurisdiction issue or the merits of the allegations in the FIR.