Special PMLA Court Discharges DHFL From Money Laundering Case After Insolvency Resolution

The Special Court under the Prevention of Money Laundering Act at Mumbai has discharged Dewan Housing Finance Corporation Limited (DHFL) from the money-laundering case linked to former Yes Bank Managing Director and CEO Rana Kapoor.

Additional Sessions Judge R. B. Rote held that the company could not be prosecuted after its insolvency resolution resulted in a complete change in management.

DHFL, now known as Piramal Capital and Housing Finance Limited, had approached the Special Court seeking discharge from the proceedings. It argued that criminal liability could not survive after the approval of a resolution plan and a consequent change in control.

The Reserve Bank of India superseded DHFL's board on November 20, 2019, citing governance concerns following defaults. The RBI then moved the National Company Law Tribunal in November 2019 to initiate insolvency proceedings. The tribunal admitted the case on December 3, 2019, and appointed an administrator.

A resolution plan submitted by Piramal Capital and Housing Finance Limited was approved by the NCLT on June 7, 2021. Following this, Piramal took over DHFL. The company was subsequently renamed Piramal Capital and Housing Finance Limited in November 2021.

DHFL contended that all alleged offences related to a period prior to the insolvency process. It said the allegations were attributable to its erstwhile promoters and directors.

The Enforcement Directorate opposed the plea. It alleged that DHFL, acting in connivance with Rana Kapoor, was part of a criminal conspiracy involving proceeds of crime worth Rs 5,050 crore. The ED claimed that Rs 4,450 crore had flowed to DHFL.

The court noted that the Central Bureau of Investigation had registered the predicate offence arising from the same transactions. It also recorded that DHFL had been discharged in that case by the Bombay High Court under Section 32A of the Insolvency and Bankruptcy Code after approval of the resolution plan.

Explaining the statutory scheme, the court said Section 32A of the Insolvency and Bankruptcy Code provides that once a resolution plan is approved and results in a change in management or control, the liability of the corporate debtor for offences committed prior to the commencement of the insolvency process “shall cease.” However, the court clarified that individuals involved in the offence continue to remain liable.

The court contrasted this with Section 70 of the Prevention of Money Laundering Act, which makes both a company and the persons in charge of its affairs at the time of the offence liable for money laundering committed by the company.

Reconciling the two provisions, the court held that Section 32A, introduced in 2020, is the later enactment and therefore prevails while assessing the competing overriding clauses.

“The PMLA enacted in the year 2002, has an overriding effect. As per the provisions of section 238 of IBC, the provisions of IBC have overriding effect. Section 32A has been introduced in 2020 in the IBC represents the “later” enactment for the purposes of evaluating the non obstante clause.", it said.

The court observed that extinguishing the criminal liability of the corporate debtor is integral to the insolvency framework, as it allows the new management to move forward without being burdened by past offences committed under the earlier management.

At the same time, the court made it clear that the immunity is limited.

"The erstwhile officers/directors of the corporate debtor who were 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 or who were directly or indirectly involved in the commission of such offence prior to the commencement of CIRP, shall continue to be prosecuted and punished for such an offence committed by the corporate debtor, notwithstanding that the corporate debtor's liability has ceased in view of section 32-A of IBC", it said. 

Accordingly, the court discharged DHFL from the PMLA proceedings.

For Accused : Senior Advocate Karan Kadam, Trilegal Dispute Practice team led by Partners Ashwyn Misra and Chitra Rentala, and supported by Senior Associate Parikshith Kezhkekara and Associate Priyanka Vishnoi instructed

For ED: Spl PP Sunil Gonsalves