Does Section 32A of the IBC Protect Resolution Applicants?

Section 32A of the Insolvency and Bankruptcy Code, 2016, inserted by the Insolvency and Bankruptcy Code (Amendment) Act, 2019, extinguishes a corporate debtor's criminal liability for pre-insolvency offences once a resolution plan is approved under Section 31, and bars attachment or confiscation of the debtor's property. The protection does not extend to former promoters, directors, or officers who actually committed the offence, whose personal liability survives untouched. It also depends on the resolution applicant genuinely being an unconnected third party. This article explains what Section 32A covers, how the Supreme Court applied it to money-laundering attachments, and the conditions an applicant must satisfy to claim its protection.

For resolution applicants, Section 32A addresses a concern that long inhibited participation in the CIRP: the risk that a new owner would inherit not just the assets of a distressed company, but also its criminal exposure. By assuring buyers of a clean break, Section 32A was intended to widen the pool of credible resolution applicants and improve creditor recoveries.

The Text and Scope of Section 32A

Section 32A(1) provides that upon approval of a resolution plan under Section 31, the liability of the corporate debtor for an offence committed prior to the insolvency commencement date is extinguished. No prosecution can be initiated against the corporate debtor after this point.

Section 32A(2) extends protection to the property of the corporate debtor included in the resolution plan. No attachment, seizure, retention, or confiscation under any law can be executed against such property after the resolution plan is approved.

What Offences Are Covered

The protection covers offences under statutes including the Prevention of Money Laundering Act, 2002 (PMLA), the Prevention of Corruption Act, 1988, the Foreign Exchange Management Act, 1999 (FEMA), and other criminal statutes where the corporate debtor may have exposure. The offence must have been committed prior to the insolvency commencement date. Post-CIRP conduct of the new management is not protected.

Who Is Not Protected Under Section 32A?

Section 32A does not protect former promoters, directors, or officers of the corporate debtor who committed the offences. Their personal criminal liability remains fully intact. Nor does it protect any individual who abetted or was involved in the commission of the offence. A resolution applicant who is itself connected to the offending conduct or was a related party to the pre-CIRP wrongdoing cannot claim Section 32A protection. The protection attaches to the corporate entity and its assets, not to the individuals who ran the company.

The Directorate of Enforcement: Initial Resistance and the Supreme Court's Response

When Section 32A was first introduced, the Enforcement Directorate (ED) resisted its application. The ED maintained that PMLA attachment orders issued before resolution plan approval should survive. Several High Courts and eventually the Supreme Court rejected this position. In Manish Kumar v. Union of India [(2021) 5 SCC 1], the Supreme Court upheld the constitutional validity of Section 32A and confirmed that it extinguishes the corporate debtor's criminal liability upon resolution plan approval, including PMLA liabilities.

The Conditions for Protection

Section 32A protection is not unconditional. The following conditions must be satisfied: first, the resolution plan must have been approved by the NCLT under Section 31; second, the resolution applicant (or any person managing the corporate debtor after plan approval) must not have been involved in the commission of the offence; and third, the resolution plan must have been submitted by a person other than the person who committed the offence. These conditions are designed to ensure that Section 32A benefits bona fide third-party acquirers rather than serving as a shield for the wrongdoers themselves.

Does Section 32A Override a PMLA Attachment?

A particular concern in distressed M&A is PMLA attachment. The ED can provisionally attach property believed to be proceeds of crime under Section 5 of the PMLA. If the corporate debtor's property is under PMLA attachment at the time of CIRP, the RP can continue operating the business subject to NCLT directions. After the resolution plan is approved under Section 31, the PMLA attachment cannot be continued against the corporate debtor's property. The ED must release the attachment. The Supreme Court confirmed this in Manish Kumar.

How Does Section 32A Interact With Section 29A?

Section 29A disqualifies resolution applicants with criminal convictions carrying two or more years imprisonment, among other disqualifications. Section 32A protects the corporate debtor from prosecution after plan approval. These two provisions work in tandem: a person who would be disqualified under Section 29A cannot obtain Section 32A protection by disguising involvement. The NCLT and resolution professionals must verify that the resolution applicant is a genuinely independent third party.

Practical Steps for Resolution Applicants

Resolution applicants should confirm that Section 32A applies to the specific PMLA or criminal proceeding at issue in the target CIRP. The resolution plan should be carefully structured to show that the applicant is clearly a third party with no connection to pre-CIRP offences. Resolution applicants may seek specific protection language referencing Section 32A in the NCLT order under Section 31. Since enforcement agencies sometimes continue proceedings despite the statute, proactive engagement is often necessary, and where an agency refuses to comply, applicants may approach the NCLT for directions or the High Court for relief.

Frequently Asked Questions

Does Section 32A protect the resolution applicant personally from prosecution?

No. Section 32A protects the corporate debtor and its property. It does not personally protect the resolution applicant from prosecution for acts unrelated to the corporate debtor's pre-CIRP offences.

Can the ED attach the corporate debtor's property after the resolution plan is approved?

No. Under Section 32A(2), no attachment, seizure, retention, or confiscation order can be executed against property included in the resolution plan after NCLT approval. The ED must release existing attachments and cannot impose new ones.

What if the PMLA attachment was confirmed by the PMLA Adjudicating Authority before resolution plan approval?

Even confirmed attachments cannot survive Section 32A upon NCLT approval of the resolution plan, per the Supreme Court's ruling in Manish Kumar v. Union of India [(2021) 5 SCC 1].

Does Section 32A apply to liquidation?

No. Section 32A applies only when a resolution plan is approved by the NCLT under Section 31. It does not apply to assets sold in liquidation under Chapter III of the IBC. Liquidation buyers do not receive Section 32A protection.

Can former directors of the corporate debtor claim protection under Section 32A?

No. Section 32A expressly excludes protection for persons who committed or abetted the offence. Former management remains fully liable regardless of what happens to the corporate entity.

If the resolution applicant is a related party of the former promoter, is Section 32A available?

No. Section 32A protection is conditioned on the resolution applicant not being connected to the offending. A related party of the former promoter who committed the offence cannot avail of Section 32A. The NCLT scrutinises this during plan approval.

Is Section 32A protection automatic, or must the resolution applicant apply for it?

Section 32A protection takes effect by statute upon NCLT approval of the resolution plan. However, enforcement agencies sometimes continue proceedings regardless. Resolution applicants typically need to bring the Section 32A protection to the agency's attention formally, and where the agency refuses to comply, seek NCLT directions or approach the High Court.

What is the practical difference between Section 32A(1) and Section 32A(2)?

Section 32A(1) extinguishes the corporate debtor's own criminal liability for pre-insolvency offences once a resolution plan is approved, so no prosecution can be initiated or continued against the corporate entity itself. Section 32A(2) is a separate protection covering the debtor's property included in the resolution plan, barring attachment, seizure, retention, or confiscation under any law once the plan takes effect. A resolution applicant needs both: the first clears the company's criminal exposure, the second secures the assets it is acquiring from being taken by an enforcement agency.

Does Section 32A cover offences under FEMA and the Prevention of Corruption Act, or only PMLA?

Section 32A is not limited to the Prevention of Money Laundering Act, 2002. It extends to offences under the Prevention of Corruption Act, 1988, the Foreign Exchange Management Act, 1999, and other criminal statutes under which the corporate debtor may have exposure for conduct predating the insolvency commencement date. PMLA has generated the most litigation because enforcement directorate attachments are common in distressed companies, but the statutory protection under Section 32A is drafted broadly across offence types, not confined to money laundering.

Can a resolution applicant disqualified under Section 29A still obtain Section 32A protection?

No. Section 29A disqualifies applicants with disqualifying criminal convictions or other listed connections to the corporate debtor's default, and a person who would be disqualified under Section 29A cannot obtain Section 32A protection simply by structuring the acquisition to disguise that involvement. The NCLT and the resolution professional are required to verify that the resolution applicant is a genuinely independent third party before the plan is approved, precisely to prevent Section 32A being used as a backdoor shield for a disqualified person.

Does Section 32A protect conduct by the new management after the resolution plan is approved?

No. Section 32A protects the corporate debtor only for offences committed prior to the insolvency commencement date. Conduct by the new management after the resolution plan takes effect receives no protection under this provision and remains subject to ordinary criminal and regulatory liability like that of any other company. The clean break Section 32A offers is retrospective, covering the company's pre-CIRP history, not a general immunity for whatever the new owners do afterward.

What can a resolution applicant do if an enforcement agency continues proceedings despite Section 32A?

Section 32A protection takes effect by operation of law upon NCLT approval of the resolution plan, but enforcement agencies sometimes continue proceedings regardless. The resolution applicant typically needs to formally bring the approved plan and the Section 32A protection to the agency's attention. Where the agency still refuses to comply, the applicant may approach the NCLT for directions in the same insolvency proceeding, or seek relief from the jurisdictional High Court, as resolution applicants have done in disputes involving continued PMLA attachment.

Does the NCLT play any role in confirming that Section 32A protection applies?

Yes. The NCLT and the resolution professional are required to scrutinise whether a resolution applicant is genuinely independent of the corporate debtor's pre-CIRP wrongdoing before approving the plan under Section 31. Resolution applicants often seek specific language referencing Section 32A within the NCLT's approval order, since an explicit reference makes it easier to invoke the protection against an enforcement agency later, even though the protection itself arises automatically from the statute rather than from the order.

Vikrant D. Shetty | Vikrant D. Shetty leads the Insolvency and Arbitration Practice at Vikrant D. Shetty & Associates, Advocates & Solicitors. The firm advises financial creditors, operational creditors, and corporate debtors in proceedings before the National Company Law Tribunal (NCLT), Mumbai Bench, and represents parties in domestic and international commercial arbitrations seated in India and abroad, including enforcement and challenge proceedings before the Bombay High Court.

Related reading: Can Contracts Be Entered Into During a CIRP?.

See also: Resolution Applicant Eligibility Under Section 29A of the IBC.

This article is for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please seek direct consultation with an advocate.