Balancing resolution efficiency and criminal accountability, section 32A of the Insolvency and Bankruptcy Code, 2016 (IBC), shields the assets of corporate debtors from being attached by prosecuting authorities. Such protection depends on two conditions. These conditions are that on approval of a resolution plan by the National Company Law Tribunal (NCLT) there has been a change of management and the incoming management has neither abetted nor conspired in the alleged offence before the corporate insolvency resolution process (resolution process) started.
This is a vital safeguard, particularly when agencies such as the Enforcement Directorate (ED) begin asset attachment proceedings in parallel with the resolution process, such as those under the Prevention of Money Laundering Act, 2002 (PMLA). This may lead to attachments continuing even after completion of the resolution process. The Supreme Court in Kalyani Transco Private Limited v Bhushan Power and Steel Limited, currently under review as of 16 June 2025, had to decide whether, under the IBC, tribunals can order agencies acting under the PMLA to release assets in accordance with section 32A.
The case arose from the resolution process of the insolvency of Bhushan Power and Steel Limited (BPSL). With resolution proceedings pending before the adjudicating authority, the NCLT, a parallel Central Bureau of Investigation case triggered Enforcement Directorate (ED) proceedings under the PMLA. The NCLT approved JSW Steel’s resolution plan for BPSL in September 2019, albeit with conditions that JSW subsequently appealed.
The ED issued a provisional attachment order in October 2019. JSW appealed to the National Company Law Appellate Tribunal (NCLAT), which stayed the order in the same month. In February 2020, the NCLAT held that the ED lacked jurisdiction to attach the assets because of the immunity granted under section 32A.
That ruling was appealed in the Kalyani Transco hearing. The Supreme Court ruled that the NCLAT had exceeded its jurisdiction by issuing directions to the ED. In doing so, it relied on its earlier judgment in Embassy Property Developments Private Limited v State of Karnataka and Ors, which held that government decisions involving public law, in that case by authorities under the Mines and Minerals (Development and Regulation) Act, 1957, can be reviewed only by constitutional courts.
The court held that the NCLAT’s directions to the ED were outside its jurisdiction. Although the court’s interpretation is sound by reinforcing statutory limits on tribunal powers, the NCLAT’s decision supported the IBC’s purpose of launching the debtor as a going concern. The Supreme Court stayed the attachment on 18 December 2019, eventually directing the release of the assets on 11 December 2024.
This timeline reveals a deeper structural issue. The IBC’s objective of swift resolution with maximised asset value is undermined when key assets remain in legal limbo. Multitudinous, unco-ordinated enforcement actions under statutes such as the PMLA, the Prohibition of Benami Property Transactions Act, 1988 and the Income Tax Act, 1961 may leave the corporate debtor’s valuation uncertain and deter prospective resolution applicants.
Although the Supreme Court’s decision sets jurisdictional boundaries, it also exposes the difficulties of enforcing section 32A’s promise of a clean slate. Prospective resolution applicants will understandably be hesitant to acquire companies entangled in unresolved enforcement actions. This is particularly so in the absence of a time-bound framework to resolve asset attachment and possible forfeiture.
A constitutional court ruling, although authoritative, may be too late to salvage commercial viability. In Kalyani Transco, some five years have passed between the initial attachment and release of assets. One solution is agency coordination. Statutory provisions, such as section 66 of the PMLA, section 138 of the Income Tax Act and section 212 of the Companies Act, 2013 already require inter-agency information sharing during investigations.
A co-operation mechanism between agencies and tribunals, jointly overseen by the Ministry of Corporate Affairs and the Ministry of Finance, will ensure that enforcement actions act in harmony with the objectives of insolvency resolution. Until then, the clean-slate promise of section 32A appears more aspirational than actual.
Bharucha & Partners – Ambar Bhushan and Divyam Sharma
