Immunity to Corporate Debtor & Its Property Under Section 32A of IBC

 Section 32A [Liability for prior offences, etc.] of the Insolvency and Bankruptcy Code, 2016 (IBC) provides immunity to the corporate debtor and its new management from liability for offences committed prior to the commencement of the Corporate Insolvency Resolution Process (CIRP), under certain conditions. It contains three main components:

1. Sub-section (1) – Immunity from prosecution for the Corporate Debtor (company entity), not the individuals responsible.

2. Sub-section (2) – Bar on action against the property of the corporate debtor under new management.

3. Sub-section (3) – Allows continued investigation and prosecution against the previous management, promoters, and officers.

 The main purpose of Section 32A is to facilitate genuine resolution of insolvent companies by ensuring that successful resolution applicants are not burdened with the liabilities of previous mismanagement and to avoid deterrents for prospective investors or buyers due to legacy criminal investigations against the company. At the same time, Section 32A strikes a balance by:

• Preserving criminal liability for persons responsible for the offence (e.g., promoters, former directors),
• Mandating cooperation with investigations under Section 32A(3),
• And providing immunity only when stringent eligibility conditions are met.

Section 32A(1) of the IBC – Immunity from Prosecution for the Corporate Debtor.

 Section 32A(1) provides that the corporate debtor shall not be liable for prosecution for any offence committed prior to the commencement of the CIRP, once a resolution plan is approved by the Adjudicating Authority (‘NCLT’) under Section 31, and there is a change in management or control to an eligible resolution applicant.

It is important to note that the change in control or ownership of the corporate debtor must be bona fide to qualify for immunity under Section 32A. Accordingly, the new acquirer—whether under a resolution plan must satisfy the following conditions:

1. The person must not be:

• A promoter, or
• In management or control, or
• A related party of the corporate debtor.

2. The person must not have:

• Abetted or conspired in the commission of the offence related to the corporate debtor,
• As per material available with the investigating authority, against whom a report has been filed by the investigating agency or a complaint has been submitted before a court.

 Bare Text of Section 32A(1) – IBC.

 “32A. (1) Notwithstanding anything to the contrary contained in this Code or any other law for the time being in force, 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 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:

 Provided that if a prosecution had been instituted during the corporate insolvency resolution process 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 been fulfilled:

 Provided further that 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 incharge 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.

 The first proviso to Section 32A(1) clarifies that if criminal prosecution was already initiated against the corporate debtor during the CIRP, such prosecution shall be automatically discharged from the date the resolution plan is approved, but only if the conditions laid down in Section 32A(1) are satisfied. This discharge is not dependent on any separate court order—it operates by law once eligibility conditions are met.

The second proviso to Section 32A(1) clarifies that even if the corporate debtor is no longer liable for offences committed prior to the commencement of the CIRP, this immunity does not extend to individuals such as a designated partner, an officer in default, or any other person who was in charge of, responsible for, or otherwise associated with the corporate debtor, and who was directly or indirectly involved in the commission of such offences, as indicated in the report or complaint filed by the investigating authority.

Section 32A(2) – Immunity to the ‘Property’ of the Corporate Debtor in certain cases.

 Section 32A(2) provides that 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, once the resolution plan is approved under Section 31, and there is a change in management or control to an eligible and unrelated resolution applicant.

Bare Text of Section 32A(2) – IBC.

“(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 corporate insolvency resolution process 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 III 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—

(iii) 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;

(iv) 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 the resolution plan or liquidation under this Code, from being held liable for an offence committed by the corporate debtor.

 The IBC is making it crystal clear that all forms of coercive action against the corporate debtor’s property related to past offences are barred once resolution or liquidation takes place and new ownership conditions are met. Once a resolution plan is approved under Section 31, and the ownership/control of the corporate debtor has passed to an eligible resolution applicant, then the assets of the corporate debtor (now under new ownership) are immune from proceedings related to offences committed prior to the initiation of CIRP.  However, this immunity is available only if:

1. The property in question is covered under a resolution plan approved by the Adjudicating Authority under Section 31 of the IBC, or

2. The property has been sold as part of the liquidation process under Chapter III of Part II of the Code.

It is important to note that the change in control or ownership of the corporate debtor must be bona fide to qualify for immunity under Section 32A. Accordingly, the new acquirer—whether under a resolution plan or through liquidation—must satisfy the following conditions:

1. The person must not be:

• • • A promoter, or
    • In management or control, or
    • A related party of the corporate debtor.

2. The person must not have:

• Abetted or conspired in the commission of the offence related to the corporate debtor,
• As per material available with the investigating authority, against whom a report has been filed by the investigating agency or a complaint has been submitted before a court.

The Explanation to Section 32A clarifies that the term “action against the property” includes any form of attachment, seizure, retention, or confiscation of such property under applicable law. Furthermore, this statutory immunity does not extend to buyers of property outside the CIRP or liquidation process.

Section 32A(3) – Immunity from prosecution does not imply immunity from cooperation.

Sub-section (3) provides that despite the immunity granted to the corporate debtor and its new management under sub-sections (1) and (2), the corporate debtor and any person who is, under any applicable law, obligated to assist in an investigation, must extend full cooperation to any authority conducting an investigation into an offence committed prior to the commencement of the CIRP. It means Immunity from prosecution does not imply immunity from cooperation. Authorities retain the right to investigate past offences, and the corporate debtor (including its officers or relevant personnel) cannot refuse to assist or provide information, even after resolution.

Bare Text of Section 32A(3) – IBC.

“(3) Subject to the provisions contained in sub-sections (1) and (2), and notwithstanding the immunity given in this section, 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.”

Conclusion: Section 32A of the IBC serves as a critical balancing provision between enabling successful corporate insolvency resolution and ensuring that accountability for past misconduct is not lost. Section 32A protects the corporate debtor and its new management or acquirer from prosecution, punishment, or attachment of property for offences committed prior to the initiation of CIRP. However, the provision does not grant immunity to individuals (such as directors, officers, or associated persons) who were responsible for or involved in the offence. They remain liable to be prosecuted and punished, even after the resolution. Additionally, the law requires that full cooperation be extended by the corporate debtor or related persons during any ongoing investigation

Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the author whatsoever and the content is to be used strictly for informational and educational purposes. While due care has been taken in preparing this article, certain mistakes and omissions may creep in. the author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.

As per material available with the investigating authority, against whom a report has been filed by the investigating agency or a complaint has been submitted before a court.