The Delhi High Court has passed an order in favor of M/s Bhushan Power and Steel Limited, quashing the process order issued by the Special Court under the Prevention of Money Laundering Act, 2002, on a criminal complaint filed by the Enforcement Directorate (ED) under Section 44 & 45 of the PMLA Act naming BPSL as a co-accused after 4 years being passed of the company undergoing successful resolution under the IBC, with M/s JSW Steel infusing nearly ₹ 19,350 crores towards its revival.
The High Court reinforced the clean slate theory that forms the essence of the Insolvency and Bankruptcy Code, 2016 (IBC), finding its statutory basis under Section 32A, by clarifying that BPSL, in its new avatar and after having undergone successful resolution under the IBC, cannot be prosecuted for offenses committed by the prior to commencement of CIRP.
ED had filed its criminal complaint before the PMLA Special Court basis a first Information Report dated April 5, 2019, registered by the Central Bureau of Investigation (CBI FIR), which alleged that BPSL had availed loans from 33 banks/financial institutions between the period of 1 April, 2007 – 31 March, 2014 to the tune of ₹ 47,204 and defaulted on making payment for such facilities and further, that an amount of Rs. 2348 crore had been fraudulently diverted.
In view of the aforesaid, the ED initiated investigations under the PMLA Act and registered the Enforcement Case Information Report (“ECIR”) dated 25 April, 2019. Subsequently, properties worth ₹ 4229.54 crore were attached by the ED vide provisional attachment order dated 10, October 2019 (PAO).
In the meantime, post the enactment of the IBC, the RBI vide its circular identified 12 big accounts, infamously known as the “dirty dozen” which included BPSL, constituting 25% of the total non performing assets in the country at the time, for immediate admission under the IBC.
The CIRP was initiated and admitted by the NCLT, Mumbai Bench on an application filed by Punjab National Bank. Subsequently, the resolution plan submitted by M/s JSW Steel (“JSW”) was approved by the NCLT on 05, September 2019 (“Plan Approval Order”).
However, despite JSW seeking a specific relief to grant protection to JSW against criminal proceedings qua acts committed by the erstwhile management of BPSL, the NCLT did not expressly grant any such protection. Thereafter, JSW preferred an appeal before the NCLAT challenging the Plan Approval Order to inter alia the extent of seeking protection from any penal/financial liability and attachment of assets of BPSL, specifically in view of the CBI FIR and the ECIR.
Despite notice having been issued by the Hon’ble NCLAT vide 16.09.2019 to the ED as well as the MCA on the said issue, ED proceeded to issue the PAO on 10.10.2019.
The NCLAT proceeded to stay the PAO vide order dated 14.10.2019 and directed that the ED was prohibited from attaching any property of BPSL without prior approval of the NCLAT. However, despite such stay, the ED proceeded to file a complaint dated 07.11.2019 inter alia against BPSL before the PMLA Adjudicating Authority under Section 5(5) of the PMLA Act arising out of the PAO and a show cause notice was issued to BPSL on 22.11.2019.
The PAO was further stayed by the Hon’ble Supreme Court vide order dated 18.12.2019, on an appeal preferred by the Committee of Creditors of BPSL to the order passed by the Hon’ble NCLAT dated 14.10.2019.
Meanwhile, the law relating to non-prosecution of a corporate debtor for liability for pre- CIRP offences was clarified by insertion of Section 32A of the IBC by the Insolvency and Bankruptcy Code (Amendment) Ordinance dated 28.12.2019 (“Ordinance”).
Subsequently, in view of the Ordinance having passed and after considering the stand of ED and MCA on the said issue, which were contrary in nature with MCA stating that there cannot be any attachment or confiscation of the assets of the corporate debtor by any enforcement agency after approval of the resolution plan, the Hon’ble NCLAT passed the order dated 17.02.2020 unequivocally stating inter alia that after completion of the CIRP process, there cannot be any threat of criminal proceedings against the corporate debtor or attachment or confiscation of its assets by any investigating agency after approval of the resolution plan. Therefore, the PAO was held to be illegal and without jurisdiction (“NCLAT Order”).
Several appeals were filed against the NCLAT Order, before the Hon’ble Supreme Court, including by the ED, specifically challenging the declaration of the PAO as illegal and raising issues on the powers of the ED to continue with proceedings under the PMLA Act, despite the insertion of Section 32A of the IBC.
After a long drawn battle of over 4 years, the ED took a pragmatic view and accepted the applicability of protection under Section 32A to BPSL and filed an affidavit dated 11.12.2024 before the Supreme Court to this effect.
By way of the said affidavit, the ED stated that since the PAO was issued after the resolution plan of BSPL under the IBC was approved, the resolution plan may prevail and further that the Hon’ble Supreme Court may direct restitution of the confiscated properties to the claimant.
The Supreme Court by way of its order dated 11.12.2024 took the aforesaid affidavit on record and disposed off the appeal filed by the ED, and directed restoration of confiscated properties of BPSL and reserved the right of the ED to investigate into the cases registered against the erstwhile promoters of BPSL under the PMLA.
In view of the aforesaid developments, the Hon’ble Delhi High Court, partly allowing the writ petition filed by BPSL under Section 226 of the Constitution of India read with Section 482 of the CRPC, (being W.P. (Crl) No. 1261 of 2024) seeking inter alia quashing of the Process Order and all criminal proceedings arising therefrom, held that a plain reading of Section 32A of the IBC would reveal that there is no dispute over the legal position that once a resolution plan has been approved by the Hon’ble NCLT under section 31 of the IBC and the conditions specified in Section 32A are fulfilled, the corporate debtor shall not be prosecuted for an offence committed prior to the commencement of the corporate insolvency resolution process.
Further, Section 32A 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 as per the complaint filed by the investigating authority, shall continue to be prosecuted and punished for such an offence committed by the corporate debtor, notwithstanding that the corporate debtor’s liability has ceased.
With these observations, the Delhi High Court vide order dated 30.01.2025 directed for the Process Order issued qua BPSL and all criminal proceedings arising therefrom to be quashed.
Dr. Abhishek Manu Singhvi and Vikas Pahwa, Senior Counsel, assisted by Raunak Dhillon, Partner; Madhavi Khanna, Principal Associate, Isha Malik, Senior Associate and Niharika Shukla, Senior Associate (Cyril Amarchand Mangaldas) represented Bhushan Power and Steel Limited.
