Introduction
The most controversial provision of India’s corporate insolvency legislation is Section 32A of the Insolvency and Bankruptcy Code (IBC), 2016. It has largely been in the limelight since it discusses granting protection to companies against being prosecuted for crimes committed prior to the initiation of the insolvency process. The concept is that when a new management comes in and a revival plan is sanctioned by the National Company Law Tribunal (NCLT), the company is supposed to have a “clean slate” so that it may begin anew. But this protection has put numerous questions with regards to how to balance the need for company revival with the need for accountability for historic crimes.
What is Section 32A?
Section 32A was brought in by the IBC Amendment Act of 2020. The prime purpose of this provision is to ensure that investors or bidders don’t hesitate to take over a failing or ailing company due to criminal liabilities incurred by the previous management. If protection were not provided, the majority of investors would refrain from bidding, and revival of companies would cease to be an effective process. Meanwhile, Section 32A is very specific that the immunity and protection are only for the company as an entity itself, not for the individuals who perpetrated the wrongdoing. Thus, while the company is being accorded immunity from prosecution and protection against asset seizure, the individuals behind past malfeasance remain accountable under the law.
Constitutional Validation of Section 32A
The validity of Section 32A under the Constitution was tested in the Supreme Court in the renowned case of Manish Kumar v. Union of India. Most believed that the section infringed key rights under Articles 14, 19, 21, and 300A of the Constitution because it appeared to accord unequal protection even if assets were traceable to crimes involving the Prevention of Money Laundering Act (PMLA). However, the Supreme Court did uphold the provision, stating clearly that the immunity is not complete. The Court emphasized that the protection can be extended only if there is a real change of management and the new management is not involved in the previous wrongdoing. The ruling pointed out that Section 32A was meant to enable the revival of corporate entities, bring in investors, and preserve jobs, but not by acquitting the culpable individuals for their wrongdoing. The most challenging among the issues concerning Section 32A is the co-existence of Section 32A with the PMLA. The IBC is more about the revival of companies, while the PMLA addresses crimes like money laundering and asset seizure for assets held as proceeds of crime. Due to this, numerous disagreements have arisen on whether the enforcement agencies such as the Enforcement Directorate (ED) can proceed with their actions against company assets after an approved resolution plan. This conflict between the two laws’ goals has resulted in a string of contradictory judgments, illustrating how intricate this branch of law is.
The Complex PMLA-IBC Interface
One of the most significant cases in this regard is Dunar Foods Ltd. V. Enforcement Directorate, ruled upon by the NCLAT in July 2025. Dunar Foods, a business enterprise which engaged in rice exports, fell into insolvency after failing to repay huge loans. Just a few days after the insolvency process started, the ED seized properties worth more than ₹177 crore, alleging they were connected to criminal activities of an associate firm. The NCLAT, in a comprehensive order, held that the Section 14 moratorium under IBC does not put on hold attachment proceedings under PMLA, particularly since investigations had already commenced prior to the insolvency. It also stated that IBC and PMLA operate in various areas and ED is not akin to a creditor but a law enforcement authority. This judgment revealed that insolvency laws cannot supersede PMLA operations automatically.
In contrast, a different strategy was adopted in the case of Vantage Point Asset Pte. Ltd. V. Gaurav Misra (Alchemist Infra Realty) was delivered in August 2024. In this case, the successful resolution applicant requested release from assets frozen by the ED so they could implement the resolution plan successfully. Though the NCLT initially declined to interfere, the NCLAT subsequently ruled that Section 32A indeed shields the assets of the company once the resolution plan is approved and conditions of new management are fulfilled. The NCLAT further noted that the NCLT has an obligation under Section 31 of IBC to facilitate smooth execution of the resolution plan. This case then put greater significance on the IBC’s goal of company revival over that of the enforcement steps under PMLA.
These competing judgments demonstrate the continued dilemma of addressing two competing objectives: the revival of ailing companies and the stringent enforcement of criminal legislations. At one end, courts have opined that safeguarding the corporate debtor under Section 32A needs to be done in order to lure investors and rescue businesses. Conversely, they have also reminded that money laundering and financial crimes cannot be left out of sight, particularly as India has global commitments to combat such practices under treaties such as FATF and UN conventions. This tug-of-war continues to define the destiny of Section 32A.
Conclusion
In conclusion section 32A is a courageous move by legislators to promote corporate rehabilitation, but it also carries many complexities. Though the provision has been held to be constitutionally valid, its interaction with other legislation, particularly PMLA, is still unresolved. Judgments in Manish Kumar, Dunar Foods, and Alchemist Infra Realty indicate that courts are still attempting to find the correct balance. Whether or not Section 32A succeeds will depend upon whether it is able to assure certainty and protection to the investor and not let the wrongdoer go easily. As India’s insolvency regime develops, Section 32A will also continue to be refined through legislation and legal precedents.
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