Introduction
The Delhi High Court, recently dealt with a Writ Petition filed by Bhushan Power & Steel Limited (BPSL)¹ under Article 226 of the Constitution of India read with Section 482 of the Criminal Procedure Code, 1973 (Cr.P.C.), seeking quashing of the Enforcement Case Information Report (ECIR).

Facts
On 26.07.2017, the National Company Law Tribunal (NCLT) admitted an application filed by Punjab National Bank (PNB) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), thereby initiating Corporate Insolvency Resolution Process (CIRP) against BPSL. On 05.04.2019, CBI had registered a FIR against BPSL, chairman, directors and other persons for an offences punishable under Sections 120B, 420, 468, 471 & 477A of the Indian Penal Code, 1860 and Section 13(2) read with 13(1)(d) of the Prevention of Corruption Act, 1988. Subsequently, the Enforcement Directorate (ED) registered an ECIR against BPSL on 25.04.2019 under the provisions of the Prevention of Money Laundering Act, 2002 (PMLA).

During the CIRP,  JSW Steel Ltd. (JSW) emerged as the successful resolution applicant. NCLT passed an order dated 05.09.2019 conditionally approving the resolution plan of JSW under Section 31 of the IBC. However, NCLT while granting the protection to JSW against criminal proceedings qua the erstwhile management of BPSL, did not expressly grant protection from liability of BPSL for the acts or omission of the previous management in relation to the period prior to approval of the resolution plan. Thus, JSW appealed to the NCLAT to protect itself from penalties, financial liability, and asset attachment for acts of omission or commission by the previous management of BPSL. Acting immediately, on 10.10.2019, the ED provisionally attached the assets of BPSL under Section 5(1) of the PMLA. However, the NCLAT stayed the order on 14.10.2019, directing ED to release the assets to the Resolution Professional.

On 28.12.2019, Section 32A was introduced through Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019, protecting corporate debtors from criminal proceedings once a resolution plan is approved. On 17.01.2020, the ED filed a complaint against BPSL, and the erstwhile Chairman and Managing Director, other directors, and officers involved in money laundering related to the bank fraud of Rs. 47,000 Crore. The erstwhile promoters and officers were also implicated under Section 70 of the PMLA.

Held
The present petition sought quashing of the ECIR and consequential proceedings against BPSL on the ground that the liability of a Corporate Debtor for an offence committed prior to the commencement of CIRP shall cease and the Corporate Debtor shall not be prosecuted for such an offence once the resolution plan has been approved. However, the Resolution Plan was challenged by various stakeholders and was pending before the Hon’ble Supreme Court.

The court while quashing the criminal proceedings against BPSL held that once a resolution plan is approved and a change in management occurs, the corporate debtor cannot be prosecuted for offences committed prior to CIRP commencement, subject to the conditions laid under Section 32A(1) of IBC. The court however observed that the erstwhile promoters, directors, and key managerial persons responsible for offences committed before CIRP initiation do not receive any protection under Section 32A and may still face prosecution. The court also clarified that the present judgement would be subject to the final outcome of the challenge to the approval of the resolution plan pending in various civil appeals filed by various stakeholders before the Hon’ble Supreme Court.

By - Lakshmi Raman