In a significant legal development, a special court in Mumbai has discharged the now-defunct Dewan Housing Finance Corporation Ltd (DHFL) from a massive ₹5,050 crore money laundering case. The ruling, delivered by Special PMLA Court Judge RB Rote on February 2, grants statutory immunity to the company under the Insolvency and Bankruptcy Code (IBC), citing its successful resolution process.
Court Cites IBC Provisions for Corporate Immunity
The court order, made available on Wednesday, emphasized that Section 32A of the IBC provides that once a resolution plan is approved by the adjudicating authority, the corporate debtor shall not be liable for prior offences. Judge Rote noted that this extinguishment of criminal liability is crucial for the new management to make a clean break from the past and start afresh, referencing Supreme Court precedents to support this interpretation.
Individuals Remain Liable for Prosecution
However, the court clarified that while DHFL as a corporate entity is discharged, this immunity does not extend to individuals involved in the case. The order specifically stated that erstwhile officers and directors who were directly or indirectly involved in the commission of offences prior to the commencement of the Corporate Insolvency Resolution Process (CIRP) shall continue to be prosecuted and punished.
Background of the DHFL Case and Acquisition
Debt-ridden DHFL was acquired by the Piramal Group in 2021 and subsequently merged into a group firm. Key accused in the case include Yes Bank co-founder Rana Kapoor, his family members, and former DHFL promoters Kapil Wadhawan and Dheeraj Wadhawan. The Enforcement Directorate (ED) has alleged that Kapoor received kickbacks worth several hundred crores of rupees through bogus loans extended by Yes Bank to DHFL and its group companies.
Legal Arguments and Submissions
DHFL's advocate, Karan Kadam, submitted that Piramal Capital and Housing Finance Ltd (now Piramal Finance Ltd) underwent a corporate insolvency resolution process under the IBC 2016. The resolution plan was approved by the National Company Law Tribunal (NCLT) on June 7, 2021, and as part of this plan, the successful resolution applicant was reverse merged into DHFL, with the corporate debtor remaining as the surviving legal entity. The name was changed to Piramal Capital and Housing Finance Ltd on November 3, 2021.
Kadam argued that the approval of the resolution plan satisfied the requirements under Section 32A of the IBC, and pointed out that the Bombay High Court had already discharged DHFL from the predicate offence being probed by the Central Bureau of Investigation (CBI).
ED's Contention and Court's Final Ruling
The ED, however, contended that DHFL could not be discharged merely due to the NCLT's approval of the resolution plan or its discharge in the predicate offence. The probe agency argued that while the CBI case had no specific provision for prosecuting the company, the Prevention of Money Laundering Act (PMLA) includes provisions holding both the company and individuals in charge liable.
After considering both submissions, the special court ruled that DHFL, as a juristic person, is entitled to immunity under Section 32A of the IBC, which overrides the PMLA provisions as a later enactment. The judge concluded that the corporate debtor cannot be prosecuted if the conditions under Section 32A are fulfilled, thereby discharging DHFL in view of the IBC provisions.
