https://www.barandbench.com/news/litigation/delhi-high-court-quashes-ed-case-against-bhushan-power-steel

The Delhi High Court recently quashed Enforcement Directorate (ED) proceedings against Bhushan Power and Steel Limited (BPSL) in money laundering offences, by invoking the clean slate theory under Section 32A of the Insolvency and Bankruptcy Code (IBC), 2016.

The Court, however, clarified that the erstwhile promoters and directors of the company would still face prosecution for alleged offences committed prior to the corporate insolvency resolution process (CIRP).

Justice Manmeet Pritam Singh Arora said,

“Further, in view of the mandate under sub-section (1) of Section 32A of the IBC, the Petitioner Company (BSPL), having undergone a successful resolution process under Section 31 of the IBC, shall not be prosecuted for the offences committed prior to the commencement of the CIRP.”

Section 32A was inserted in the IBC with effect from December 2019. It provides immunity to the corporate debtor and its assets from prosecution or attachment if a resolution plan of a company under insolvency is approved. This would mean attachment of properties by ED would also cease on the approval of a resolution plan.

The case dates back to 2017, when the National Company Law Tribunal (NCLT) admitted an insolvency petition against BPSL filed by Punjab National Bank (PNB). During the CIRP, JSW Steel emerged as the successful resolution applicant, and its resolution plan was conditionally approved by the NCLT on September 5, 2019.

However, prior to the resolution plan’s approval, the Central Bureau of Investigation (CBI) had registered a case on April 5, 2019 against BPSL, its chairman, directors and others for offences including criminal conspiracy, cheating, forgery and corruption. Subsequently, the ED initiated a money laundering investigation and provisionally attached BPSL’s assets on October 10, 2019.

The NCLT and later the National Company Law Appellate Tribunal (NCLAT) had granted protection to JSW Steel from criminal proceedings related to the erstwhile management of BPSL. However, the NCLAT had also ruled that the ED’s attachment of BPSL’s assets was illegal, citing Section 32A of the IBC.

The ED challenged the NCLAT’s decision in the Supreme Court, which, in its December 11, 2024 order, allowed JSW Steel to take control of BPSL’s attached assets while safeguarding the ED’s right to investigate the erstwhile promoters and directors.

In the present case, ED acknowledged the applicability of Section 32A, but emphasised that the erstwhile promoters and directors could still be prosecuted for their alleged involvement in the bank fraud and money laundering case.

The High Court, while quashing the criminal proceedings against BPSL, upheld the principle of the “clean slate” under the IBC, which allows a corporate debtor to start afresh after a successful resolution process. The Court noted that since JSW Steel had taken over BPSL and the resolution plan had been approved, the company could not be prosecuted for offences committed by its previous management.

“A plain reading of the above provision would reveal that there is no dispute over the legal position that once a resolution plan has been approved by the adjudicating authority under Section 31 of IBC and the conditions specified in Section 32A of the IBC are fulfilled, the Corporate Debtor shall not be prosecuted for an offence committed prior to the commencement of the CIRP.”

However, the Court clarified that the erstwhile promoters and directors of BPSL would remain liable for prosecution under the PMLA. It also stated that the observations made in the order would not impact the ongoing trial against the former management.

“Section 32A of IBC also clarifies that any erstwhile officer of the Corporate Debtor who was in any manner in charge of, or responsible to the Corporate Debtor for the conduct of its business or associated with the Corporate Debtor in any manner or who was directly or indirectly involved in the commission of such offence prior to the commencement of CIRP as per the complaint filed by the investigating authority, shall continue to be prosecuted and punished for such an offence committed by the Company,” the judgment said.

The Court further clarified that the order will be subject to the final outcome of the challenge to the approval of the resolution plan pending before the Supreme Court.

BPSL was represented by Senior Advocates Abhishek Manu Singhvi and Vikas Pahwa, who were briefed by a team from Cyril Amarchand Mangaldas (CAM) comprising Raunak Dhillon (Partner), Madhavi Khanna (Principal Associate), Isha Malik (Senior Associate) and Niharika Shukla (Senior Associate).

ED was represented by Special Counsel Zoheb Hossain and Advocates Manish Jain, Vivek Gurnani, Kartik Sabharwal, Pranjal Tripathi and Kaushik Maurya.

Advocate Satya Ranjan Swain represented Union of India.