The Supreme Court on Tuesday upheld Section 32A of the Insolvency and Bankruptcy Code (IBC) that protect new owners/ home-buyers of bankrupt companies from the charges filed against the previous management.
A Three-Judge Bench of the Supreme Court comprising of Justices Rohinton Fali Nariman, Navin Sinha and K. M. Joseph, said in its verdict, “The liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted.”
Section 32A of the Insolvency and Bankruptcy Code (IBC) aimed to give a clean break to successful resolution applicants from the erstwhile management by shielding them and immunizing them from prosecution and liabilities for offences that may have been committed prior to the commencement of the CIRP. Section 32A provides immunity to the corporate debtor and its property when there is approval of the resolution plan resulting in the change of management of control of corporate debtor. “A bankrupt company and its assets cannot face criminal proceedings once it is sold to new owners,” bench of apex court observed.