Liability for prior offences under Section 32A of the Insolvency and Bankruptcy Code 2016 (IBC)

CIRP
CIRP and Resolution Plan

Liability for prior offences under Section 32A of the IBC

The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 dated 28.12.2019 has inserted section 32A to provide that the liability of a Corporate Debtor for an offence committed prior to the commencement of the CIRP shall cease, and the Corporate Debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority, if the resolution plan results in the change in the management or control of the Corporate Debtor. However, every person who was a designated partner or an ‘officer who is in default’ or was in any manner in-charge of the conduct of the business of the Corporate Debtor in any manner and who was directly or indirectly involved in the commission of such offence shall continue to be liable to be prosecuted and punished for such offence committed by the Corporate Debtor. Similarly, no action shall be taken against the property of the Corporate Debtor in relation to an offence committed prior to the commencement of the CIRP of the Corporate Debtor, where such property is covered under a resolution plan approved by the AA, which results in change in control of the Corporate Debtor. These provisions are subject to the Corporate Debtor or any person, who may be required to provide assistance, extending assistance and cooperation to any authority investigating the offence committed prior to the commencement of the CIRP. This would encourage prospective resolution applicants to submit resolution plans undeterred by uncertainties surrounding the offence committed by the Corporate Debtor prior to CIRP.

Liability for prior Offences [Sec. 32A]

 The section provide the that the liability of a corporate debtor for an offence committed prior to the commencement of the CIRP shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority under section 31, if the resolution plan results in the 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 with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court:

However, if a prosecution had been instituted during the CIRP against such corporate debtor, it shall stand discharged from the date of approval of the resolution plan subject to requirements of this sub-section having fulfilled.

Every person who was a “designated partner” as defined in clause (j) of section 2 of the Limited Liability Partnership Act, 2008 or an “officer who is in default”, as defined in clause (60) of section 2 of the Companies Act, 2013, or was in any manner in-charge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of such offence as per the report submitted or complaint filed by the investigating authority, shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor notwithstanding that the corporate debtor’s liability has ceased under this sub-section.[Section 32A(1)]

2. No action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the CIRP of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority under section 31, which results in the change in control of the corporate debtor to a person, or sale of liquidation assets under the provisions of Chapter II of Part II of this Code to a person, who was not:

(i) a promoter or in the management or control of the corporate debtor or a related party of such a person; or

(ii) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court.

Explanation.- For the purposes of this sub-section, it is hereby clarified that,-

(i) an action against the property of the corporate debtor in relation to an offence shall include the attachment, seizure, retention or confiscation of such property under such law as may be applicable to the corporate debtor;

(ii) nothing in this sub-section shall be construed to bar an action against the property of any person, other than the corporate debtor or a person who has acquired such property through corporate insolvency resolution process or liquidation process under this Code and fulfils the requirements specified in this section, against whom such an action may be taken under such law as may be applicable. [Section 32A(2)]

3. The corporate debtor and any person, who may be required to provide assistance under such law as may be applicable to such corporate debtor or person, shall extend all assistance and co-operation to any authority investigating an offence committed prior to the commencement of the corporate insolvency resolution process. [Section 32A(3)]

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