Money-laundering case against corporate debtor in CIRP after approved resolution plan: Section 32A blocks continuation; debtor removed

Section 32A IBC was held to bar continuation of money-laundering proceedings against a corporate debtor undergoing CIRP once a resolution plan is approved and substantially implemented, provided the successful resolution applicant is unconnected with erstwhile management and is not a beneficiary of proceeds of crime. Consequently, the corporate debtor was directed to be deleted from the array of accused, while prosecution of erstwhile directors/persons in control and confiscation of their attached properties may continue. Any challenge by the enforcement agency to NCLT approval of the resolution plan was closed, and it was held to have no right or lien over assets of the corporate debtor forming part of the plan. Deposits made pursuant to SC directions were ordered to be refunded with interest.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether, in the circumstances of a successful corporate insolvency resolution, the attached properties (or their substituted deposit) should be restored to the Successful Resolution Applicant under Section 8(8) of the PMLA, as a restitution measure.

(ii) Whether, having regard to Section 32A of the IBC, the Corporate Debtor must be deleted from the pending prosecution complaint, while permitting continuation of prosecution and confiscation proceedings against erstwhile directors/persons in control/conspirators/abettors.

(iii) What conditions and consequences should govern the grant of Section 32A benefit to the Successful Resolution Applicant, including the Directorate of Enforcement's liberty if later facts undermine the foundation for such benefit.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Restoration of attached properties/substituted deposit to the Successful Resolution Applicant under Section 8(8) PMLA

Legal framework (as applied by the Court): The Court proceeded on the parties' common position that Section 8(8) PMLA is intended to ultimately restore attached properties to bona fide claimants with a legitimate interest, and expressly treated the restitution direction as one made under the second proviso to Section 8(8).

Interpretation and reasoning: The Court found the present context to be similar to prior instances where the Directorate of Enforcement consented to restoration to a successful resolution applicant. Here, the Successful Resolution Applicant had stepped into the shoes of the Corporate Debtor pursuant to a concluded resolution. Given the parties' consent and the stated object of Section 8(8), the Court accepted a consent-based resolution without adjudicating merits.

Conclusions: The Court confirmed the setting aside of the Provisional Attachment Order and directed restoration of the attached properties to the Successful Resolution Applicant. Since the properties stood substituted by a deposit under an earlier direction, the Court ordered release of the deposited amounts with accrued interest (if any) within two weeks, and declared that the Directorate of Enforcement would have no right or lien over those properties or other assets forming part of the approved resolution plan. The Court expressly kept all questions of law and merits open and directed that the order should not be treated as precedent.

Issue (ii): Deletion of the Corporate Debtor from the prosecution complaint under Section 32A IBC, while continuing proceedings against individuals

Legal framework (as applied by the Court): The Court expressly invoked Section 32A of the IBC to determine the consequence of successful resolution on the Corporate Debtor's prosecution status.

Interpretation and reasoning: On the footing of Section 32A and successful resolution, the Court held that the Corporate Debtor should not remain in the array of accused in the pending prosecution complaint. At the same time, it clarified that this does not impede continuation of proceedings concerning culpable individuals associated with the prior management/control and their properties/entitlements.

Conclusions: The Court directed deletion of the Corporate Debtor from the prosecution complaint, while allowing continued prosecution of erstwhile directors and/or persons in control or conspirators or abettors, and continuation of confiscation in respect of their attached/restrained properties/entitlements, if any. It further reiterated that the ongoing investigation/proceedings against such individuals would continue and the present order would have no bearing on them.

Issue (iii): Conditions attached to Section 32A benefit and the Directorate of Enforcement's liberty upon erosion of foundational facts

Legal framework (as applied by the Court): The Court conditioned the Section 32A protection on the Successful Resolution Applicant not being connected with erstwhile directors and not being a beneficiary of proceeds of crime derived from the alleged scheduled offence.

Interpretation and reasoning: The Court treated these conditions as foundational to granting relief. It contemplated the possibility that ongoing investigation could reveal contrary material, in which event the basis for protection would be undermined.

Conclusions: The Court held that if the stated foundation is eroded during investigation, the Directorate of Enforcement would be at liberty to take appropriate steps in accordance with law, including questioning the resolution plan. Additionally, any challenge by the Directorate of Enforcement to the approval of the resolution plan was closed on the terms recorded, subject to the above conditional liberty.

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