Delhi High Court Quashes PMLA Proceedings Against Bhushan Power & Steel Limited Following Successful Insolvency Resolution

In a landmark judgment, the Delhi High Court has quashed criminal proceedings initiated by the Enforcement Directorate (ED) against Bhushan Power & Steel Limited (BPSL) under the Prevention of Money Laundering Act, 2002 (PMLA). The court’s decision is grounded in Section 32A of the Insolvency and Bankruptcy Code (IBC), which provides immunity to corporate debtors from prosecution for offenses committed prior to the commencement of the Corporate Insolvency Resolution Process (CIRP), upon successful resolution.

Background of the Case

BPSL, a prominent player in the steel industry, faced insolvency proceedings initiated by the National Company Law Tribunal (NCLT). During the CIRP, JSW Steel Ltd emerged as the successful resolution applicant, leading to the approval of a resolution plan under Section 31 of the IBC.

Concurrently, the Central Bureau of Investigation (CBI) registered a case against BPSL, its chairman, director, and others under various sections of the Prevention of Corruption Act and the Indian Penal Code, alleging a bank fraud amounting to approximately ₹47,000 crores. Following the CBI’s First Information Report (FIR), the ED initiated an Enforcement Case Information Report (ECIR) against BPSL for alleged money laundering activities.

Legal Proceedings and Attachment of Assets

In its pursuit, the ED issued a Provisional Attachment Order (PAO), attaching assets of BPSL identified as ‘proceeds of crime’ under the PMLA. However, this attachment was challenged and subsequently struck down by the National Company Law Appellate Tribunal (NCLAT), citing violations of Section 32A of the IBC. The ED’s appeal to the Supreme Court resulted in a directive to restore the confiscated properties to BPSL, while preserving the ED’s right to investigate cases against the company’s former promoters.

Delhi High Court’s Rationale

Justice Manmeet Pritam Singh Arora, presiding over the case, emphasized the legal protection afforded to corporate debtors under Section 32A of the IBC. The provision stipulates that upon the approval of a resolution plan, the corporate debtor shall not be prosecuted for offenses committed prior to the initiation of the CIRP, provided certain conditions are met. The court noted:

“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 offense committed prior to the commencement of the CIRP.”

Given that BPSL had undergone a successful resolution process, the court concluded that the company could not be held liable for past offenses, leading to the quashing of the PMLA proceedings initiated by the ED.

Implications of the Judgment

This ruling underscores the protective framework established by the IBC to encourage the revival of financially distressed companies. By providing immunity from prosecution for prior offenses upon successful resolution, the IBC aims to promote corporate restructuring and ensure the continuity of business operations.

Legal experts view this judgment as a reaffirmation of the IBC’s intent to balance the interests of creditors and corporate debtors, while also delineating the boundaries of investigative agencies like the ED in the context of insolvency proceedings.

Conclusion

The Delhi High Court’s decision to quash the PMLA proceedings against BPSL highlights the judiciary’s role in interpreting and enforcing the provisions of the IBC. It reinforces the principle that successful insolvency resolutions provide a fresh start for corporate debtors, free from the burdens of past misconduct, thereby fostering a more robust and resilient corporate ecosystem in India.