Delhi High Court Rules Section 32A IBC Grants Corporate Debtor Immunity from Prosecution Post-Resolution Plan but Does Not Bar Investigation into ₹409.26 Crore Bank Fraud Allegations

Court’s Decision:

The Delhi High Court, while adjudicating the petition under Section 482 CrPC (now Section 528 BNSS), refused to quash the FIR against Gangakhed Sugar and Energy Ltd. The court clarified that Section 32A of the Insolvency and Bankruptcy Code (IBC) grants immunity to a corporate debtor from prosecution for offences committed before the approval of a resolution plan. However, the section does not bar ongoing investigations into such offences.

Facts:

1. Nature of Allegations: The FIR alleged that Gangakhed Sugar and Energy Ltd., in collusion with its erstwhile management and directors, defrauded a consortium of six banks (led by UCO Bank), causing a financial loss of ₹409.26 crores. The loans were granted for establishing an Integrated Cane Processing Plant.
2. Period of Offence: The fraudulent activities, including fund diversion and fraudulent financial documentation, reportedly occurred from 2008 to 2017.
3. Corporate Insolvency Process: In 2019, the petitioner’s account was declared a non-performing asset (NPA). The National Company Law Tribunal (NCLT) initiated corporate insolvency resolution proceedings, and a resolution plan was approved in February 2023, transferring management to M/s Six Sigma Investment Fund.

Issues:

1. Applicability of Section 32A IBC:
   • Does it protect the petitioner from prosecution for offences committed by the previous management?
2. Validity of FIR:
   • Can the FIR be quashed when it concerns offences allegedly committed before the resolution plan’s approval?
3. Territorial Jurisdiction:
   • Whether the FIR registered in Delhi is valid when the alleged fraud occurred in Maharashtra.

Petitioner’s Arguments:

1. Immunity Under Section 32A IBC:
   • The petitioner claimed that the company, now under new management, is immune from prosecution for offences allegedly committed by its erstwhile directors.
   • The insolvency resolution plan approved by NCLT triggered immunity as per Section 32A IBC.
2. No Involvement of New Management:
   • The alleged offences occurred before the takeover by the new management.
3. Territorial Jurisdiction:
   • The petitioner argued that all relevant transactions occurred in Maharashtra, questioning the jurisdiction of Delhi authorities.
4. Violation of Natural Justice:
   • The forensic audit report, which formed the basis of the FIR, was not shared with the petitioner for representation before declaring the account fraudulent.

Respondent’s Arguments (CBI):

1. Investigation Not Barred:
   • Section 32A provides immunity against prosecution but explicitly allows the investigation to continue.
2. Non-Cooperation of New Management:
   • The new management failed to assist in the investigation, contravening Section 32A(3), which mandates cooperation.
3. FIR Validity:
   • The FIR disclosed prima facie cognizable offences, and the investigation was necessary to determine the truth.
4. Territorial Jurisdiction:
   • CBI, being a central agency, is empowered to investigate bank fraud cases anywhere in India.

Analysis of the Law:

1. Section 32A IBC:
   • The provision was introduced to protect a corporate debtor and its assets from liabilities related to past offences after a resolution plan’s approval. However, it explicitly states that the investigation into prior offences can continue, and assistance from the corporate debtor is mandatory.
2. Case Law Analysis:
   • Ebix Singapore Pvt. Ltd. v. Committee of Creditors:
     • Affirmed immunity for corporate debtors but clarified that investigations can continue post-resolution.
   • Ajay Kumar Goenka v. Tourism Finance Corporation:
     • Distinguished between corporate immunity under Section 32A and personal liability of directors for past misconduct.
   • Neeharika Infrastructure v. State of Maharashtra:
     • Highlighted that FIRs revealing cognizable offences should not be quashed prematurely and that courts must allow investigations to proceed unless extraordinary circumstances justify interference.
3. Territorial Jurisdiction:
   • The court noted that central agencies like CBI have jurisdiction over major financial frauds regardless of the location of the offence.

Precedent Analysis:

1. Ebix Singapore Pvt. Ltd.:
   • Section 32A ensures a clean slate for a corporate debtor post-resolution. The protection fosters the resolution process but does not absolve liabilities unrelated to corporate operations.
2. Ajay Kumar Goenka:
   • The immunity extends to the corporate entity but excludes directors and others directly involved in the offences.
3. Neeharika Infrastructure:
   • Investigations into cognizable offences cannot be thwarted without compelling reasons.

Court’s Reasoning:

1. Scope of Section 32A:
   • While immunity under Section 32A prevents prosecution, it does not inhibit investigations. The petitioner must cooperate with authorities to facilitate the inquiry.
2. FIR Validity:
   • The FIR revealed prima facie allegations of cognizable offences (fraud and fund diversion), warranting an investigation. The court declined to interfere prematurely.
3. Jurisdiction:
   • The central nature of the alleged fraud justified CBI’s involvement and territorial jurisdiction in Delhi.

Conclusion:

The court ruled that:

• Investigation Continuance: The FIR is valid, and the investigation must continue to determine the culpability of the accused.
• No Prosecution: If the investigation confirms compliance with Section 32A, the corporate debtor cannot be prosecuted.
• Cooperation Required: The petitioner is obligated to assist investigators, failing which it may face legal repercussions.

Implications:

1. Corporate Immunity Defined:
   • Section 32A strikes a balance between granting immunity to corporate debtors and ensuring accountability for past misconduct.
2. Encouraging Resolution Plans:
   • The provision aims to attract resolution applicants by shielding new management from past liabilities.
3. Accountability Maintained:
   • Directors and individuals responsible for offences remain prosecutable, ensuring that wrongdoers are held accountable.

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