In the case of Bhushan Power & Steel Limited (BPSL) v Union of India & Another (2025), Delhi High Court has held that once a resolution plan is approved and a change in management occurs, a corporate debtor cannot be prosecuted for offences committed prior to commencement of the Corporate Insolvency Resolution Process (CIRP).
The court was hearing a writ petition filed by BPSL, seeking to quash the enforcement directorate complaint.
Background
The Punjab National Bank initiated a CIRP against BPSL before the (NCLT). Sometime afterwards, the Central Bureau of Investigations registered criminal cases against BPSL for corruption, cheating and forgery. Subsequently, the Enforcement Directorate (ED) registered a complaint against BPSL under laws for the prevention of money laundering.
The NCLT conditionally approved the resolution plan of JSW Steel (JSW), but did not grant protection from liability of BPSL in relation to the period prior to approval of the resolution plan. JSW then appealed against this, and the ED provisionally attached the assets of BPSL.
However, the appellate authority granted a stay order, directing the ED to release the assets to the resolution professional.
By ordinance, an amendment was subsequently introduced to the insolvency law that extended protection to corporate debtors from criminal proceedings once a resolution plan is approved.
The ED then filed a complaint against BPSL for money laundering related to the bank fraud of INR470 billion (USD5.4 billion).
BPSL next filed a petition before Delhi High Court seeking quashing of the ED complaint and consequential proceedings, on the grounds that the liability of a corporate debtor for an offence committed prior to the commencement of a CIRP shall cease, and the corporate debtor shall not be prosecuted for it once the resolution plan has been approved.
However, the resolution plan was challenged by various stakeholders and is pending before the Supreme Court.
Conclusion
While quashing the criminal proceedings against BPSL, the court held that once a resolution plan is approved and a change in management occurs, the corporate debtor cannot be prosecuted for offences committed prior to CIRP commencement, subject to conditions in the law.
The court, however, observed that erstwhile promoters, directors and key managerial persons responsible for offences committed before CIRP initiation do not receive any protection under the ordinance and may still face prosecution. The court also clarified that the present judgment would be subject to the final outcome of the challenge to approval of the resolution plan pending before the Supreme Court.
The dispute digest is compiled by Numen Law Offices, a multidisciplinary law firm based in New Delhi & Mumbai. The authors can be contacted at support@numenlaw.com. Readers should not act on the basis of this information without seeking professional legal advice.
