Delhi High Court quashes proceedings of PMLA against Bhushan P&S LTD

The Delhi High Court has recently delivered a significant ruling in favor of M/s Bhushan Power and Steel Limited (BPSL), quashing the process order issued by the Special Court under the Prevention of Money Laundering Act (PMLA), 2002. This order was issued in response to a criminal complaint filed by the Enforcement Directorate (ED) under Sections 44 and 45 of the PMLA Act, naming BPSL as a co-accused. The complaint was filed four years after BPSL had successfully undergone resolution under the Insolvency and Bankruptcy Code (IBC), 2016, with M/s JSW Steel infusing nearly ₹19,350 crores towards its revival.

The ED filed its criminal complaint with the PMLA Special Court based on a First Information Report (FIR) dated April 5, 2019, registered by the Central Bureau of Investigation (CBI). The FIR alleged that BPSL had availed loans from 33 banks and financial institutions between April 1, 2007, and March 31, 2014, to the tune of ₹47,204 crores and defaulted on payments. It further alleged that ₹2,348 crores had been fraudulently diverted.

Subsequently, the ED initiated investigations under the PMLA Act and registered the Enforcement Case Information Report (ECIR) dated April 25, 2019. Properties worth ₹4,229.54 crores were attached by the ED through a provisional attachment order (PAO) dated October 10, 2019.

Post the enactment of the IBC, the Reserve Bank of India (RBI) identified 12 large accounts, known as the “dirty dozen,” which included BPSL. These accounts constituted 25% of the total non-performing assets in the country at the time. The Corporate Insolvency Resolution Process (CIRP) was initiated and admitted by the National Company Law Tribunal (NCLT), Mumbai Bench, on an application filed by Punjab National Bank. The resolution plan submitted by M/s JSW Steel was approved by the NCLT on September 5, 2019.

Despite JSW seeking protection against criminal proceedings for acts committed by the erstwhile management of BPSL, the NCLT did not expressly grant such protection. JSW subsequently appealed to the National Company Law Appellate Tribunal (NCLAT), challenging the Plan Approval Order to seek protection from penal/financial liability and attachment of BPSL’s assets, specifically in light of the CBI FIR and the ECIR.

Despite a notice issued by the NCLAT to the ED and the Ministry of Corporate Affairs (MCA) on September 16, 2019, the ED proceeded to issue the PAO on October 10, 2019. The NCLAT stayed the PAO on October 14, 2019, prohibiting the ED from attaching any property of BPSL without prior approval. However, the ED filed a complaint against BPSL before the PMLA Adjudicating Authority on November 7, 2019, and issued a show cause notice on November 22, 2019.

The PAO was further stayed by the Supreme Court on December 18, 2019, following an appeal by the Committee of Creditors of BPSL. Meanwhile, Section 32A was inserted into the IBC by the Insolvency and Bankruptcy Code (Amendment) Ordinance dated December 28, 2019, clarifying the non-prosecution of a corporate debtor for pre-CIRP offenses.

In light of the Ordinance, the NCLAT passed an order on February 17, 2020, stating that after completion of the CIRP, there could be no threat of criminal proceedings against the corporate debtor or attachment/confiscation of its assets by any investigating agency after approval of the resolution plan. The PAO was declared illegal and without jurisdiction.

Several appeals were filed against the NCLAT Order in the Supreme Court, including by the ED, challenging the declaration of the PAO as illegal and questioning the ED’s powers to continue proceedings under the PMLA Act despite the insertion of Section 32A.

After a protracted legal battle spanning over four years, the ED accepted the applicability of protection under Section 32A to BPSL and filed an affidavit dated December 11, 2024, before the Supreme Court. The affidavit acknowledged that since the PAO was issued after the resolution plan under the IBC was approved, the resolution plan should prevail. The Supreme Court, in its order dated December 11, 2024, disposed of the appeal filed by the ED, directed the restoration of confiscated properties of BPSL, and reserved the ED’s right to investigate cases registered against the erstwhile promoters of BPSL under the PMLA.

In light of these developments, the Delhi High Court, partly allowing the writ petition filed by BPSL under Section 226 of the Constitution of India read with Section 482 of the Code of Criminal Procedure (CRPC), held that Section 32A of the IBC clearly states that once a resolution plan has been approved by the NCLT and the conditions specified in Section 32A are fulfilled, the corporate debtor shall not be prosecuted for offenses committed prior to the commencement of the CIRP.

The High Court further clarified that any erstwhile officer of the corporate debtor who was involved in the commission of such offenses would continue to be prosecuted. The court, in its order dated January 30, 2025, directed the quashing of the process order issued against BPSL and all criminal proceedings arising therefrom.

BPSL was represented by Dr. Abhishek Manu Singhvi and Vikas Pahwa, Senior Counsel, assisted by Raunak Dhillon, Partner; Madhavi Khanna, Principal Associate; Isha Malik, Senior Associate; and Niharika Shukla, Senior Associate from Cyril Amarchand Mangaldas.

This landmark ruling by the Delhi High Court reinforces the “clean slate” theory of the IBC and provides clarity on the non-prosecution of corporate debtors for pre-CIRP offenses, ensuring that companies undergoing successful resolution under the IBC are not subjected to undue legal proceedings.