Section 32A of IBC and release of property attached by the Directorate of Enforcement

A company acquired through the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC) often comes with assets of the Corporate Debtor which the Directorate of Enforcement (ED) has attached under the Prevention of Money Laundering Act, 2002 (PMLA). While the Successful Resolution Applicant (SRA) may acquire the rights and title to such attached properties under the Resolution Plan approved by the National Company Law Tribunal (NCLT), that would not automatically wipe out the continuation of the attachment over properties by the ED. In such peculiar circumstances, Section 32A of the IBC holds the key to release or restoration of these attached properties to the Corporate Debtor, who is now being driven and controlled by the SRA.

Section 32A was inserted in the IBC with effect from December 28, 2019 with a twofold objective, i.e, (i) immunity against prosecution and (ii) protection of assets from any action. Under sub-section (1), the Corporate Debtor's liability for offences committed prior to the CIRP ceases on the date of approval of the Resolution Plan by the NCLT. Consequently, the company cannot be prosecuted for those offences after that date. Further, sub-section (2) protects the company's property by barring any action, in relation to a pre-CIRP offence, against property covered by the approved plan. The Explanation thereto expressly states that such action includes “attachment, seizure, retention and confiscation."

In order to ensure that immunity under Section 32A isn’t misused, certain safeguards have been placed by the legislature. One such caveat in particular states that the protection under Section 32A shall be available only if the approved plan brings about a change in the management or control of the Corporate Debtor to a person who is not a promoter, manager or related party and against whom the investigating agency has no material to suspect of abetting or conspiring in the offence. It is pertinent to state that such protection is not extended to the individuals and officers responsible for the alleged offence, and prosecution qua them by the respective Investigating Agencies continues in accordance with law.

This protection to an SRA has been further enhanced by the introduction of Section 31 (6), through an amendment to IBC, which was brought into force from May 26, 2026. As per this newly-inserted sub-section, upon approval of a Resolution Plan, any claim against the Corporate Debtor and its assets under any other law, relating to the period prior to approval of the Resolution Plan, shall stand extinguished, unless the resolution plan provides otherwise. Further, the said provision also bars the continuation or institution of any proceedings, including assessment proceedings, on the basis of such claims.

A conjoint reading of Section 32A with Section 31(6) significantly strengthens the SRA's position, thereby establishing that after the approval of the Resolution Plan by the NCLT, attachment against the assets covered under such Plan or proceedings against the Corporate Debtor cannot continue, while the Investigating Agencies, including ED, are free to pursue legal action against the individuals responsible for the offence.

For the purpose of exercising its rights under Section 32A, IBC and depending upon the stage of investigation and proceedings, the SRA has the option to either approach the Adjudicating Authority / Appellate Tribunal established under PMLA, or to seek restoration of the attached property by approaching the Special Court under section 8(8), PMLA. In certain scenarios where questions of law are involved, even a writ petition before the concerned High Court can be an effective option depending upon the facts of the case.

The constitutional validity of Section 32A was challenged before the Supreme Court of India in the case of Manish Kumar, where the apex court conducted an elaborate examination of the legislative intent, objectives, reasons for the introduction of the said provision, and the issue of balancing conflicting interests to attain public welfare. Ultimately, the apex court upheld the constitutional sanctity of the said provision as it gives a clean slate to the SRA while being hedged with ample safeguards to avoid any exploitation.

Relying upon the law laid in Manish Kumar (supra), the Appellate Tribunal (PMLA), in the matter of Viceroy Hotels, has set aside the provisional attachment by ED as well as the confirmation order. While doing so, the Appellate Tribunal held that Section 32A shall come into force once the Resolution Plan has been approved by the NCLT. The Appellate Tribunal rejected the ED's argument that an attachment under PMLA operates independently of the insolvency process under IBC.

Over the years, in various significant cases before the Supreme Court concerning the applicability of Section 32A to attachments made by it under the PMLA, ED has granted its consent for release and restoration of properties in favour of legitimate claimants, such as an SRA. In JSW Steel Ltd., the ED was directed to hand over the attached assets of Bhushan Power and Steel Ltd. to JSW, treating the handover as restitution under Section 8(8). In Udaipur Entertainment, the Supreme Court restored attached properties to the SRA for the benefit of homebuyers after the ED gave its no-objection. In V Hotels, the Corporate Debtor's properties were restored to the SRA under the second proviso to Section 8(8). Recently, in Shiv Charan’s case, after receiving the consent of ED, the Supreme Court directed that the attached property be released to the SRA within two weeks of the said order. It was reiterated that the question of law with respect to the effect of Section 32A in such cases still remains pending.

The interplay between PMLA and IBC, specifically with respect to the effect of Section 32A over attached properties, is constantly evolving, mostly in favour of the SRAs to grant them a “clean slate”  and to protect the larger economic benefit.

The release of properties attached by ED under PMLA, pursuant to approval of the Resolution Plan under IBC is still not automatic. However, in view of Section 32A(2), the Supreme Court's confirmation of that provision in Manish Kumar, the extinguishment of pre-approval claims under Section 31(6), and the Appellate Tribunal's ruling in Viceroy Hotels, an SRA's case for release and restoration of attached properties, now rests on a very strong footing.

About the authors: Ritesh Kumar is a Senior Partner and Laksh Khanna is a Partner at Bahuguna Law Associates.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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