Section 32A IBC Immunity: PMLA Attachment and Directors

Section 32A gives a resolved company and its assets a criminal clean slate, so that bidders are not deterred by the risk of attachment or prosecution for offences of the old management. The protection is conditional and limited: control must pass to untainted hands, the offence must predate the CIRP, and individuals remain liable. Questions test each condition and the line between the company's property and the promoters' own.

1. The Law in Brief

• Section 32A(1). The liability of the corporate debtor for an offence committed before the commencement of the CIRP ceases from the date of approval of the plan, and pending prosecutions are discharged, if the plan results in a change in management or control to a person who was not a promoter, manager or related party of the debtor, and not a person whom the investigating authority has reason to believe abetted or conspired in the offence and against whom it has filed a report or complaint.
• Individuals. Every person who was a designated partner, officer in default or in charge of the business, or otherwise involved in the offence, remains liable.
• Section 32A(2). No action, including attachment, seizure, retention or confiscation, may be taken against the property of the corporate debtor covered by such a plan, or sold in liquidation to a person meeting the same conditions.
• Validity. Upheld in Manish Kumar v Union of India (2021) as a policy choice to make resolution workable.

Figure 1: Does section 32A protect the debtor?

2. Can the ED Attach Assets after a Resolution Plan?

• Issue. Whether an investigating agency may attach the corporate debtor's property after approval of a plan for offences committed before the CIRP.
• Law. Section 32A(2) bars any action, including attachment, seizure, retention or confiscation under any law, against the property of the corporate debtor in relation to an offence committed before the CIRP, where the property is covered by an approved plan that changes control to an untainted person. It does not protect the property of other persons, such as the former promoters.
• Application. The alleged offence was committed in 2023, before the CIRP. The plant is covered by the approved plan, and control has passed to TU Steel, which has no link with the promoters and is not alleged to have abetted the offence. The flats belong to the promoters.
• Conclusion. The attachment of the plant is barred and must be released. The attachment of the promoters' flats is unaffected, and the prosecution of the promoters may continue.

3. Does Section 32A Apply if Control Returns to the Family?

• Issue. Whether section 32A applies where control passes to a related party of a former manager.
• Law. Section 32A(1) applies only where the plan results in a change in management or control to a person who was not a promoter or in management or control of the corporate debtor, or a related party of such a person. Section 240A relaxes certain clauses of section 29A for MSMEs, which determines eligibility to bid; it does not relax the conditions of section 32A.
• Application. The investor company is controlled by a relative of the former managing director and is a related party of a person who was in management of VW Ltd. Eligibility to bid does not satisfy section 32A.
• Conclusion. VW Ltd is not entitled to immunity, and the prosecution against it may continue, along with any prosecution of the former officers.

Figure 2: Who section 32A protects

4. Does Section 32A Protect Former Directors?

• Issue. Whether approval of the plan ends prosecution of the company and of its former managing director.
• Law. Under section 32A(1), the corporate debtor's liability for a pre-CIRP offence ceases and a pending prosecution against it stands discharged from the date of approval, where control has changed as required. The second proviso preserves the liability of every person who was in charge of and responsible to the debtor for the conduct of its business. In Goenka (2023), applying the same principle to section 138 cases, the Supreme Court held that directors cannot escape liability because the company has been resolved.
• Application. The offence was committed in 2024, before the CIRP, and control passed to an unrelated investor. Mr Z was the managing director at the time.
• Conclusion. The prosecution against XY Ltd stands discharged. The prosecution against Mr Z continues; section 32A was designed to protect the company and its new owners, not those responsible for the offence.

5. Does Section 32A Cover Offences during CIRP or Liquidation Sales?

• Issue. Whether section 32A protects an asset sold in liquidation, and whether it covers offences committed after the CIRP commenced.
• Law. Section 32A covers offences committed before the commencement of the CIRP. Under section 32A(2)(b), no action may be taken against property of the corporate debtor sold in liquidation to a person who meets the conditions of section 32A(1)
• Application. The 2024 fraud predates the CIRP, and CD Ltd is an unrelated buyer in liquidation. The March 2026 violation occurred after the CIRP commenced, so it falls outside section 32A.
• Conclusion. The police cannot attach the plant for the 2024 fraud. Section 32A does not bar action for the March 2026 violation, so the authority's proceedings must be decided under the environmental law itself, though any claim against the corporate debtor's estate is subject to the moratorium and the liquidation process. CD Ltd should rely on the terms of the sale and the NCLT's directions.

6. Frequently Asked Questions

When was section 32A introduced?

By the ordinance of 28 December 2019, replaced by the Amendment Act of 13 March 2020 (Topic 94).

Does section 32A extinguish civil claims?

No. It concerns criminal liability and action against property for offences; civil claims are extinguished by section 31 and Ghanashyam Mishra (2021).

Must the corporate debtor and the new owner cooperate with investigations?

Yes. Section 32A requires them to extend assistance and cooperation to any authority investigating the offence.

7. Related Topics

• Topic 46: Section 32A. Immunity for the corporate debtor.
• Topic 108: Section 138 Cheque Cases and Suits during IBC Moratorium. Directors' liability.
• Topic 120: Failed Resolution Plans. Withdrawal and breach.