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A Mumbai special court has discharged Dewan Housing Finance Corp Ltd from a money-laundering case of around INR 5,050 crore, citing statutory immunity under the Insolvency and Bankruptcy Code after its resolution and change in management. The court held that once a resolution plan is approved, the corporate debtor cannot be prosecuted for pre-insolvency offences. However, the protection does not extend to former promoters or officials. DHFL was taken through insolvency after regulatory action in 2019 and was later acquired by Piramal Capital and Housing Finance Ltd.
A special Prevention of Money Laundering Act (PMLA) court in Mumbai has discharged Dewan Housing Finance Corp Ltd (DHFL) from a money-laundering case involving about INR 5,050 crore, holding that the company is entitled to immunity under the Insolvency and Bankruptcy Code (IBC) after completion of its resolution process. The court observed that DHFL, as a corporate entity, cannot face prosecution for offences committed prior to the start of insolvency proceedings once a resolution plan has been approved and management has changed. Advertisement
The court relied on Section 32A of the IBC, which provides protection to a corporate debtor from criminal liability for past offences once a resolution plan is implemented and control passes to new owners who are not connected to earlier management. It noted that continuing prosecution against the corporate entity would defeat the objective of giving the resolved company a clean slate and enabling revival under new ownership.
At the same time, the court made it clear that the immunity applies only to the company and not to individuals who were in charge of its affairs during the period under investigation. Former promoters, directors and officers named in the case continue to face prosecution. The court stated that personal liability for alleged wrongdoing remains unaffected by the corporate resolution process.
DHFL had entered insolvency after serious governance concerns and payment defaults led the Reserve Bank of India to supersede its board in 2019. The company was admitted to the corporate insolvency resolution process later that year. A resolution plan submitted by Piramal Capital and Housing Finance Ltd was approved by the National Company Law Tribunal in 2021, resulting in a complete change in control. DHFL was subsequently merged into the Piramal group's financial services business.
The Enforcement Directorate has alleged that DHFL was used as a vehicle to route funds through fraudulent loans and related-party transactions. The wider case also involves former DHFL promoters Kapil and Dheeraj Wadhawan and Yes Bank co-founder Rana Kapoor, who are accused of participating in a larger conspiracy involving kickbacks and misuse of bank funds. Proceedings against these individuals will continue independently of the corporate discharge.
Source PTI
FAQ
Q1. What decision did the Mumbai special court take in the DHFL case?
A special court under the Prevention of Money Laundering Act in Mumbai discharged Dewan Housing Finance Corp Ltd from a money-laundering case involving around INR 5,050 crore. The court ruled that DHFL, as a corporate debtor, is protected from prosecution for pre-insolvency offences after completion of its insolvency resolution process and a change in management.
Q2. On what legal basis was DHFL granted immunity?
The court relied on Section 32A of the Insolvency and Bankruptcy Code. This provision grants immunity to a corporate debtor from criminal liability for past offences once a resolution plan is approved and control passes to new owners who are not connected with the earlier management. The court said this protection is essential to ensure effective revival of stressed companies.
Q3. Does this ruling protect former DHFL promoters and officials as well?
No. The court clearly stated that the immunity applies only to the corporate entity and not to individuals. Former promoters, directors and officials who were responsible for the company's affairs during the relevant period will continue to face prosecution. Their personal criminal liability remains unaffected by the insolvency resolution of the company.
Q4. Why did the court say prosecution of DHFL should not continue?
The court observed that continuing criminal proceedings against the corporate debtor after a successful resolution would undermine the objective of the IBC. The purpose of insolvency resolution is to give the company a clean slate under new ownership, encourage revival and protect the interests of creditors, employees and the broader financial system.
Q5. What led DHFL into insolvency proceedings?
DHFL was taken into insolvency after the Reserve Bank of India superseded its board in 2019 due to governance failures and defaults on repayments. The company was admitted to the corporate insolvency resolution process later that year. In 2021, the National Company Law Tribunal approved a resolution plan submitted by Piramal Capital and Housing Finance Ltd, leading to a complete change in management and ownership.
Q6. What happens to the money-laundering case going forward?
While DHFL as a company has been discharged, the broader case will continue against individuals accused by the Enforcement Directorate. This includes former DHFL promoters Kapil and Dheeraj Wadhawan and Yes Bank co-founder Rana Kapoor. The court clarified that investigations and trials against these individuals will proceed independently of the corporate discharge.
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