Section 32A IBC: Immunity for the Corporate Debtor

A buyer of an insolvent company pays for its business and assets, not for the crimes of its former promoters. Yet before 2019, a successful resolution applicant could find the company prosecuted, or its assets attached, for offences committed under the old management. Section 32A removes that risk. It frees the corporate debtor and its property from liability for past offences once control passes to genuinely new hands, while keeping the individuals responsible within reach of the criminal law. This note explains the provision, its conditions and the leading cases.

1. Why Section 32A Was Inserted

• The problem. Investigating agencies, including the Enforcement Directorate acting under the Prevention of Money Laundering Act, attached assets of corporate debtors for offences of their former promoters, even after resolution plans had been approved; the attachment of assets of Bhushan Power and Steel, whose plan by JSW Steel had been approved, was the best known instance.
• Effect on bids. Bidders could not value a company whose assets might be confiscated, and would either reduce their bids or stay away, defeating the object of maximising value.
• Enactment. Section 32A was inserted by an ordinance with effect from 28 December 2019, later replaced by the Insolvency and Bankruptcy Code (Amendment) Act, 2020.

Figure 1: The components of section 32A

2. Cessation of Liability, Section 32A(1)

• Main rule. Notwithstanding anything in the Code or any other law, the liability of a corporate debtor for an offence committed before the commencement of the CIRP ceases, and it is not prosecuted for that offence, from the date the NCLT approves the resolution plan under section 31.
• Condition. The plan must result in a change in the management or control of the corporate debtor to a person who was not (a) a promoter, or in the management or control of the corporate debtor, or a related party of such a person; or (b) a person whom the investigating authority, on the basis of material in its possession, has reason to believe abetted or conspired in the offence, and against whom it has filed a report or complaint.
• Pending prosecutions. If a prosecution was instituted against the corporate debtor during the CIRP, it stands discharged from the date of approval of the plan.
• Individuals remain liable. Every person who was a designated partner, an officer in default, or in any manner in charge of and responsible to the corporate debtor for the conduct of its business, or associated with it and directly or indirectly involved in the offence, continues to be liable to prosecution and punishment.

Figure 2: Does section 32A apply?

3. Protection of Property, Section 32A(2)

• The bar. No action may be taken against the property of the corporate debtor in relation to an offence committed before the CIRP, where the property is covered by an approved resolution plan that changes control as described above, or is sold in liquidation to a person who meets the same conditions.
• Meaning of action. The Explanation clarifies that action includes attachment, seizure, retention or confiscation under any law for the time being in force.
• Limit. The bar does not prevent action against the property of any person other than the corporate debtor, or of a person who acquired it through the CIRP or liquidation, so the personal assets of the former promoters remain exposed.

4. Duty to Cooperate, Section 32A(3)

The corporate debtor, and any person who may be required to provide assistance under the law, must extend all assistance and cooperation to any authority investigating an offence committed before the CIRP. The immunity therefore does not obstruct the investigation itself; it only ensures that the punishment falls on the wrongdoers rather than on the rescued company and its new owners.

Figure 3: Who is protected and who is not

5. Manish Kumar v Union of India, 2021

• Challenge. Section 32A was challenged, together with the 2020 thresholds for allottees under section 7, as arbitrary and as allowing offenders to escape punishment.
• Holding. In its judgment of 19 January 2021, the Supreme Court upheld the provision, holding that it is a legislative policy choice to make the Code workable and that the change of management to an untainted person is a reasonable basis for it.
• Reasoning. The new owners need a fresh start; without the protection, bids would fall and the Code's object of maximising value would suffer; and those actually responsible for offences remain liable to prosecution.

6. Section 32A and Other Laws

• Section 138 of the NI Act. In Ajay Kumar Radheyshyam Goenka v Tourism Finance Corporation of India, decided on 15 March 2023, the Supreme Court held that a director cannot escape prosecution for a dishonoured cheque because the company has been resolved or dissolved; section 32A frees only the corporate debtor (Topic 78)
• Money laundering. Attachment under the Prevention of Money Laundering Act of the corporate debtor's property in relation to past offences is barred once section 32A applies, but the agency may proceed against the property of the former promoters.
• The clean slate. Section 32A deals with criminal liability and action against property for offences; the extinguishment of civil claims follows from section 31 and Ghanashyam Mishra (2021), and from the new section 31(6) inserted in 2026 (Topic 42)
• Later offences. Offences committed after the commencement of the CIRP, or by the new management, are not covered.

7. Frequently Asked Questions

Does section 32A protect the former managing director of the corporate debtor?

No. The second proviso to section 32A(1) keeps every officer in default and every person in charge of or involved in the offence liable to prosecution and punishment. Only the corporate debtor is freed.

Can the Enforcement Directorate attach the corporate debtor's plant after a resolution plan is approved?

Not in relation to an offence committed before the CIRP, if the plan transfers control to an untainted person. Section 32A(2) bars attachment, seizure, retention or confiscation of property covered by the plan.

Does section 32A apply if the promoter's relative acquires the company under the plan?

No. The immunity requires a change of control to a person who is not a promoter, manager or related party of such a person. Such a person would usually also be ineligible under section 29A (Topic 38).

Does section 32A apply in liquidation?

Yes, as far as property is concerned. Under section 32A(2), property sold in liquidation to a person who meets the same conditions is protected from action for offences committed before the CIRP.

Is the corporate debtor freed from offences committed during the CIRP?

No. The immunity covers only offences committed before the commencement of the CIRP. Liability for later offences continues in the ordinary way.

8. Related Topics

• Topic 42: Section 31. Approval and the clean slate.
• Topic 52: Personal Liability of Directors and Promoters. Those who remain liable.
• Topic 78: IBC and Section 138 NI Act. Cheque dishonour and insolvency.