Delhi High Court Rules IBC Moratorium Doesn’t Bar Criminal Liability, Denies Section 32A Shield Without Approved Plan

Delhi High Court Rules IBC Moratorium Doesn’t Bar Criminal Liability, Denies Section 32A Shield Without Approved Plan

Introduction

The Delhi High Court has held that the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) merely suspends proceedings temporarily and does not extinguish criminal liability. Justice Chandrasekharan Sudha clarified that immunity under Section 32A arises only upon approval of a resolution plan that results in a qualifying change in management.

Factual Background

JAS Infrastructure and Power Ltd. was convicted in a coal block allocation case under Sections 420 and 120B of the IPC and sentenced to pay fines of ₹50 lakh each. The company had entered insolvency in 2019 and was under liquidation since 2020.

Procedural Background

The company approached the High Court seeking suspension of sentence, relying on provisions of the IBC, including Sections 14, 32A, and 33(5). It argued that continuation of criminal liability would hinder the liquidation process and discourage prospective resolution applicants or buyers.

Issues

1. Whether moratorium under Section 14 extinguishes criminal liability.

2. Whether Section 32A immunity applies in absence of an approved resolution plan.

3. Whether criminal proceedings can be stayed during liquidation to facilitate insolvency resolution.

Contentions of the Parties

The appellant contended that ongoing insolvency proceedings and liquidation justified suspension of sentence, as criminal liability would adversely impact value realisation and the insolvency process.

The prosecution, led by the CBI, argued that criminal proceedings predated insolvency and that Section 32A immunity is conditional upon approval of a resolution plan and change in management, which had not occurred in the present case.

Reasoning and Analysis

The Court held that Section 14 of the IBC only provides a temporary moratorium on proceedings and does not extinguish criminal liability. It emphasized that Section 32A grants immunity only when specific statutory conditions are fulfilled, including approval of a resolution plan and change in management to an unrelated entity.

The Bench noted that no such resolution plan had been approved in the present case, and therefore the benefit of Section 32A was unavailable. The Court further observed that criminal proceedings initiated prior to insolvency cannot be nullified merely because the corporate debtor has entered CIRP or liquidation. Considering the seriousness of the offence and the absence of statutory protection, the Court declined to suspend the sentence.

Decision

The Delhi High Court dismissed the plea for suspension of sentence, holding that criminal liability continues despite insolvency proceedings where no resolution plan has been approved.

In this case the appellant was represented by Mr. Shambo Nandy. Meanwhile the respondent was represented by Mr. R.S. Cheema, Sr. Adv. with Ms. Tarannum Cheema, Mr. Akshay N., and Mr. Akash Singh.