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A Mumbai special court has discharged DHFL from an INR 5,050 crore money laundering case, granting it statutory immunity under the Insolvency and Bankruptcy Code following its resolution and acquisition by the Piramal Group. The court held that once an IBC resolution plan is approved, the corporate debtor is protected from liability for past offences. However, the immunity does not apply to individuals involved in the alleged wrongdoing. Former DHFL promoters and Yes Bank co-founder Rana Kapoor will continue to face prosecution under the PMLA.
A special court in Mumbai has discharged the now-defunct Dewan Housing Finance Corporation Ltd (DHFL) from a money laundering case involving INR 5,050 crore, holding that the company, now under new ownership, is entitled to statutory immunity under the Insolvency and Bankruptcy Code (IBC). The court clarified that the relief applies only to DHFL as a corporate entity and does not extend to individuals accused in the matter. Advertisement
The ruling was delivered by Special PMLA Court Judge RB Rote, who held that DHFL became eligible for immunity after its successful resolution under the IBC framework. The court observed that once a resolution plan is approved by the adjudicating authority, the corporate debtor is no longer liable for offences committed prior to the commencement of the insolvency resolution process. This protection, the court noted, allows the new management to sever links with past misconduct and continue operations without legacy legal burdens.
However, the court made it clear that former promoters, directors, and officers who were directly or indirectly involved in the alleged offences remain outside the scope of this immunity. Such individuals will continue to face prosecution and possible punishment for offences committed before the insolvency process began.
DHFL had been acquired by the Piramal Group a few years ago following a resolution process under the IBC, after which it was merged into a group entity. The merged company later adopted the Piramal Capital and Housing Finance name, while DHFL continued as the surviving legal entity during the transition.
The case stems from allegations by the Enforcement Directorate (ED) that Yes Bank co-founder Rana Kapoor received several hundred crores in kickbacks through allegedly bogus loans extended by Yes Bank to DHFL and its group companies. According to the ED, Kapoor misused his position to gain undue financial benefits amounting to INR 5,050 crore for himself, his family members, and associates through acts of bribery, corruption, and money laundering. Former DHFL promoters Kapil Wadhawan and Dheeraj Wadhawan are also among the key accused.
During the proceedings, DHFL's counsel argued that the company had undergone a corporate insolvency resolution process under the IBC and that the approved resolution plan met all conditions laid down under Section 32A of the Code. It was also pointed out that the Bombay High Court had earlier discharged DHFL in the predicate offence being investigated by the Central Bureau of Investigation.
The ED opposed the plea, contending that discharge under the IBC or in the predicate offence should not automatically extend to proceedings under the Prevention of Money Laundering Act (PMLA). The agency argued that the PMLA contains specific provisions to prosecute both companies and individuals responsible for contraventions.
After considering both sides, the court ruled that while the PMLA deems companies guilty under certain conditions, the immunity granted under Section 32A of the IBC, being a later enactment, has an overriding effect. The judge concluded that once the statutory conditions are fulfilled, the corporate debtor cannot be prosecuted, leading to DHFL's discharge from the case.
Source PTI
FAQ
Q1. Why did the Mumbai special court discharge DHFL from the money laundering case?
The Mumbai special court discharged DHFL after holding that the company is entitled to statutory immunity under the Insolvency and Bankruptcy Code. The court ruled that once a resolution plan is approved and management changes hands, the corporate debtor cannot be prosecuted for offences committed before the insolvency process began.
Q2. Which legal provision did the court rely on to grant immunity to DHFL?
The court relied on Section 32A of the Insolvency and Bankruptcy Code. This provision protects a corporate debtor from criminal liability for past offences once a resolution plan is implemented and control passes to a new management that is not connected with earlier wrongdoing.
Q3. Does this immunity apply to individuals linked to DHFL as well?
No, the court clearly stated that the immunity applies only to the corporate entity. Former promoters, directors, officers, and other individuals allegedly involved in the offence do not receive protection under the IBC and will continue to face prosecution under the Prevention of Money Laundering Act.
Q4. What is the background of DHFL's insolvency and change in ownership?
DHFL was taken through the corporate insolvency resolution process after serious governance issues and financial stress came to light. Following the IBC process, the company was acquired by the Piramal Group, and its business was merged into Piramal Capital and Housing Finance, resulting in a complete change in control and management.
Q5. What are the allegations in the INR 5,050 crore money laundering case?
The Enforcement Directorate has alleged that DHFL was used in a scheme involving fraudulent loans and kickbacks. The case includes accusations that Yes Bank co-founder Rana Kapoor received illegal benefits through loans extended to DHFL and its group companies. Former DHFL promoters Kapil and Dheeraj Wadhawan are also accused in the matter.
Q6. Why did the court reject the ED's objections to DHFL's discharge?
The court held that Section 32A of the IBC has an overriding effect, as it is a later law intended to give resolved companies a clean slate. While acknowledging that the PMLA allows prosecution of companies in certain cases, the judge ruled that once the conditions under the IBC are met, the corporate debtor cannot be prosecuted, leading to DHFL's discharge.
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