2025 (9) TMI 1278 - HC - Money Laundering

Approval of resolution plan extinguishes non-preserved liabilities including contingent criminal liability; Section 32A IBC grants immunity to successful applicant

NTPC Ltd. Versus Directorate of Enforcement

HC held that approval of the Resolution Plan by the NCLT extinguishes all liabilities of the corporate debtor not preserved in the Plan, including ... Money Laundering - validity of notice directing a successful resolution applicant to appear in ongoing criminal proceedings concerning the corporate debtor - Resolution Plan has already been approved by NCLT in favour of the Petitioner - immunity conferred by Section 32A of the Insolvency and Bankruptcy Code (IBC) - HELD THAT:- The approval of the Resolution Plan by NCLT is a judicial determination that brings to an end all liabilities of the corporate debtor that are not specifically preserved in the Plan. This includes contingent and potential liabilities, whether criminal or civil. To allow a Government Agency to re-agitate a liability that has been statutorily and judicially extinguished is to undermine the finality of the insolvency resolution process. It subjects the new Management to a form of double jeopardy, where the Company’s past has been fully adjudicated and settled by one judicial authority i.e. NCLT, only to be resurrected by learned Special Judge, thereby creating uncertainty and defeating the purpose of IBC. Prosecuting the revived Corporate Entity does not serve any objective of punishing the actual money launderers or confiscating their ill-gotten gains. Instead, it penalizes a bona fide Public Sector Undertaking that has invested in reviving a stressed asset; a result that is manifestly contrary to the spirit and intention of the IBC. All the pre-conditions for the applicability of the immunity under IBC have been fulfilled, namely a Resolution Plan submitted by the Petitioner has been approved by the NCT and it had resulted in a complete change in management and control of JPL to a person, who was not a promoter, related party or a person implicated by the Investigating Agency in the commission of the alleged offence. The NCLT approved Resolution Plan is binding on all stakeholders, which expressly includes the Central Government and any statutory authority there under, such as the Respondent. Directing Petitioner to represent JPL in a criminal trial for a liability that has been statutorily extinguished is a futile, vexatious and oppressive exercise. The Supreme Court has repeatedly held that inherent powers of the High Court under Section 482 Cr.P.C. should be exercised to prevent abuse of the process of the Court or otherwise, to secure the interest of justice. The Petitioner has no connection whatsoever with the alleged acts of erstwhile management of JPL. It has neither been involved in, abetted, or conspired with the commission of the alleged offences. It is well established from the Order of NCLT that the Resolution Plan submitted by the Petitioner in respect of Insolvency proceedings initiated against JPL/Accused No.21, has been accepted making it a 50% shareholder of JPL. Also, the immunity under Section 32A IBC has been granted to the Petitioner. It emerges that Accused No.21 JPL had fallen into a legal debt. The Petitioner being a successful Resolution Applicant, cannot be considered as a successor of JPL. However, as has been pointed out by the learned Counsel on behalf of the State, there is no Summoning Order passed against the Petitioner, but only a Notice has been given for collecting further information. The Petition is disposed of with the directions to NTPC to appear before the learned Trial Court and bring to its notice the aforesaid facts along with the Order of NTPC and the immunity granted there under. The learned Trial Court shall consider the submissions of the NTPC and pass appropriate Orders as it deems fit, especially clarifying whether NTPC is to be arrayed as an Accused. In case, no case is made out against NTPC, then speaking reasoned Order in this regard, be made by the learned Special Judge. Petition disposed off. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether a notice directing a successful resolution applicant to appear in ongoing criminal proceedings concerning the corporate debtor is inconsistent with the immunity conferred by Section 32A of the Insolvency and Bankruptcy Code (IBC) and the finality of an NCLT-approved resolution plan. 2. Whether a notice issued to a resolution applicant for the limited purpose of ascertaining factual information about the corporate debtor (distinct from a summons as accused) is permissible notwithstanding Section 32A and the NCLT order granting immunity. 3. Whether the High Court should exercise inherent powers to quash or direct appropriate trial-court treatment of proceedings where continuation or issuance of notice may frustrate the 'clean slate' doctrine under the IBC. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Compatibility of notice/summons with Section 32A IBC and finality of NCLT-approved resolution plan Legal framework: Section 32A IBC grants immunity to a successful resolution applicant from prior offences of the corporate debtor, subject to conditions in the statute and to the extent provided in the approved resolution plan. The NCLT's approval of a resolution plan effects transfer of management/control and can extinguish liabilities not preserved in the plan, providing finality to the insolvency resolution process and implementing the 'clean slate' doctrine. Precedent Treatment: The Court referred to established principles that summoning in criminal cases is a serious step and should not be done as a matter of course; relied upon general authorities emphasizing prevention of abuse of criminal process (cited authorities in the judgment were invoked to support the principle but not to displace Section 32A). Interpretation and reasoning: The Court found that the NCLT had approved the resolution plan making the petitioner a 50% shareholder and expressly granted immunity under Section 32A. The approval constitutes a judicial determination terminating liabilities of the corporate debtor except those preserved. Allowing criminal proceedings or summoning a resolution applicant as representative of the corporate debtor would undermine the finality achieved by the CIRP, expose the new management to continued litigation, and defeat the statutory purpose of encouraging bona fide resolution applicants. Ratio vs. Obiter: Ratio - The NCLT-approved resolution plan which grants immunity under Section 32A operates to bar criminal proceedings (or their extension to the resolution applicant) in respect of liabilities extinguished by the plan. Obiter - Observations about double jeopardy-like consequences and policy concerns were explanatory of the rationale for Section 32A. Conclusions: The Court recognized that where immunity under Section 32A has been granted by an NCLT-approved resolution plan and the pre-conditions for such immunity are satisfied, subjecting the resolution applicant to criminal process in respect of those extinguished liabilities would be contrary to the IBC's scheme and principles of finality. Issue 2 - Distinction between issuance of notice for factual information and summoning as accused; permissibility of limited procedural steps Legal framework: Criminal procedure distinguishes between notices for obtaining information and formal summons/charges against accused persons. Section 32A provides overriding effect over other statutes to the extent of immunity conferred, but does not categorically foreclose legitimate fact-finding where not tantamount to prosecutorial action against the resolution applicant. Precedent Treatment: The Court treated prior authorities about caution in summoning as supporting the proposition that mere issuance of a notice for factual clarification is different in character from summoning as an accused; such distinctions are permissible so long as they do not operate to circumvent the statutory immunity. Interpretation and reasoning: The Special Judge's order was interpreted as issuing a notice to the resolution applicant to present facts about the existence/status of the corporate debtor, not as a summons as an accused. The Court emphasized that no summoning order had been passed against the resolution applicant; hence the trial court may seek information but must treat the resolution applicant's status and immunity as established by the NCLT order. Ratio vs. Obiter: Ratio - A notice limited to eliciting factual information about the corporate debtor is not ipso facto inconsistent with Section 32A, provided it does not amount to prosecutorial action or attempt to re-agitate extinguished liabilities. Obiter - Guidance that courts must scrutinize the substance of such notices to ensure they do not circumvent immunity. Conclusions: The issuance of a notice for factual clarification is permissible in form, but its exercise must respect the immunity conferred by Section 32A. If the notice effectively functions as a summoning or seeks to subject the resolution applicant to prosecution for extinguished liabilities, it would be impermissible. Issue 3 - Appropriate exercise of High Court's inherent powers and direction to trial court when immunity and NCLT order are on record Legal framework: High Court's inherent powers (under Section 482 Cr.P.C. analogously invoked) permit intervention to prevent abuse of process and to secure ends of justice. The NCLT order and Section 32A are binding on statutory authorities and courts, and must inform trial-court proceedings. Precedent Treatment: The Court relied on established principles that the High Court can issue directions to ensure that lower courts do not allow proceedings to continue in a manner inconsistent with statutory immunity or judicial orders. Interpretation and reasoning: Given that the NCLT order granting immunity and the approved resolution plan were on record, the High Court found it appropriate to direct the resolution applicant to appear before the trial court to place the NCLT order and immunity on record, and required the trial court to consider those submissions and pass a reasoned order clarifying whether the resolution applicant is to be arrayed as an accused. The Court chose disposition by direction rather than outright quashal, balancing the State's interest in fact-finding and the resolution applicant's statutory protection. Ratio vs. Obiter: Ratio - Where an NCLT-approved resolution plan and Section 32A immunity exist on record, the High Court may direct the trial court to consider those documents and decide, with reasons, whether the resolution applicant is to be treated as an accused; the High Court may dispose of a petition by mandating such consideration rather than immediate quashing. Obiter - Observations on the policy imperatives of encouraging resolution applicants. Conclusions: The High Court disposed of the petition by directing appearance before the trial court to place the NCLT order on record and ordered the trial court to, after considering submissions, pass a reasoned order clarifying whether the resolution applicant is to be arrayed as an accused. If no case is made out, the trial court must record a speaking order exonerating the resolution applicant. Cross-references and operative synthesis Where the NCLT has approved a resolution plan and expressly conferred immunity under Section 32A, the finality and 'clean slate' effect of the CIRP preclude criminal prosecution of the resolution applicant for liabilities extinguished by that plan; however, limited procedural inquiries for factual clarification may be permissible in form if they do not amount to prosecutorial measures or an attempt to re-agitate extinguished liabilities. The High Court may direct the trial court to consider and rule on the effect of the NCLT order with reasons, and to ensure the immunity is respected in practice.