Section 32A of the Insolvency and Bankruptcy Code, 2016, was introduced through the IBC (Amendment) Act, 2019, to assure resolution applicants that, once a compliant plan is approved and control shifts to a new management, the corporate debtor and its property would begin on a clean slate, being free from liability for offences committed before the commencement of CIRP. The constitutional validity of this provision was upheld by the Supreme Court in Manish Kumar v. Union of India, which affirmed that Section 32A's purpose is to balance prosecution of guilty individuals with the facilitation of economic revival. The promise, however, is more restrained in practice than it appears on paper, particularly where the Enforcement Directorate has attached core assets under the Prevention of Money Laundering Act, 2002.
This post argues that Section 32A is structurally under-inclusive. It is least effective precisely in cases where it is most needed, namely where slices of the corporate debtor's operational estate are frozen under PMLA before plan approval, where Indian group structures make the "connected persons" gate unpredictably wide and where the Resolution Professional is left without institutional guidance on how to manage an asset pool that is partly legally inaccessible. Unless these gaps are addressed, Section 32A will remain an ex-post remedy that arrives after resolution value has already been destroyed.
The Three-Gate Architecture and Its Limits
Section 32A operates through three cumulative conditions that include an approved resolution plan under Section 31 IBC (or a liquidation order), a change in management or control to persons who are not promoters, related parties or persons involved in the offence (the "connected persons" gate) and the commission of the relevant offence prior to commencement of CIRP. On the face of it, this design reflects a legitimate normative choice that is to protect revival without granting impunity to wrongdoers. The difficulty is that PMLA enforcement does not behave like a creditor claim that can be "dealt with" inside a resolution plan instead, it operates as an external freezing order that can strip the corporate debtor of the very assets required for a going-concern sale, well before Section 32A can be invoked.
This tension is compounded by how the judicial framework treats IBC and PMLA as operating in distinct fields. In Deputy Director, Directorate of Enforcement v. Axis Bank , the Delhi High Court held that PMLA confiscation is not a creditor action and therefore the IBC moratorium under Section 14 does not bar ED attachments during CIRP.
The Timing Mismatch: CIRP Is Fast, PMLA Is Not
Section 32A only activates after plan approval and therefore offers no stabilization during the bidding window, which is the most value-sensitive phase of the entire CIRP. PMLA proceedings encompassing provisional attachment, confirmation, appellate tribunal scrutiny and potential writ challenge operate on timelines that are structurally misaligned with insolvency proceedings. During this period, operationally critical assets such as land, plant and receivables can remain frozen and legally inaccessible even though the character of those assets as proceeds of crime has not been finally determined.
The commercial consequence is significant, resolution applicants price not only the expected liability but also the time cost and execution risk of operating under enforcement uncertainty. This risk premium is not theoretical. Distressed market participants routinely apply steep discounts to asset valuations or decline to bid altogether on estates where ED attachments cloud the title over core assets. Section 32A does not eliminate that discount unless bidders can be assured at the front end of CIRP that attached operational assets will not remain frozen through the auction window. The provision offers no such assurance because it speaks only to the moment after a plan is approved and not to the process that precedes approval.
The Connected Persons Conditionality Trap
Beyond timing, another difficulty arises from connected persons gate under Section 32A wherein it is normatively coherent where the alleged wrongdoers are a narrow and clearly isolable group. It becomes structurally problematic in Indian corporate group realities, where holding companies, operating subsidiaries, special purpose vehicles and guarantors are linked by common directors, cross-shareholdings and inter-corporate transactions. Where PMLA proceedings allege that multiple group entities functioned as conduits for proceeds of crime, the range of individuals implicated in the offence expands significantly.
As a result, acquirers from within the group are by definition disqualified from Section 32A immunity. External buyers must model the risk that any prior commercial relationship whether through supply contracts, prior joint ventures or even shared legal representation, will be scrutinized as evidence of connection. The Supreme Court in Manish Kumar v. Union of India confirmed that the immunity collapses if the acquiring entity or its persons are found to have abetted or conspired in the predicate offence, a condition that enforcement agencies may contest vigorously in group-wide investigations. The result is that Section 32A converts what should be a value-preserving rule into a fact-intensive and enforcement-contestable condition precedent, precisely at the moment when the law claims to deliver finality and certainty.
The RP's Impossible Mandate
A closely related but distinct problem concerns the RP's institutional position. Under Section 18(f) IBC, the RP is obligated to take control and custody of all assets of the corporate debtor, including those in possession of third parties. This duty is foundational because the entire going-concern valuation, the information memorandum and the bidding process rest on the premise that the RP can accurately represent and manage the asset base.
When ED attachments freeze operationally critical assets, the RP is required by the IBC to preserve and maximize value, but is simultaneously unable under judicial doctrine to disturb a PMLA attachment or exercise operational control over the attached assets. The RP must consequently present a distorted asset picture to potential bidders, disclosing a going concern in name while administering an estate with a critical gap in its operational footprint. Section 32A does not address this interim vacuum. It offers retrospective validation only if a plan is eventually approved and provides no guidance on how the RP should treat attached assets in valuations, how to communicate the risk profile to bidders or whether to approach the PMLA adjudicatory chain to seek conditional interim relief.
Towards a Workable Reform
Three targeted interventions would materially improve Section 32A's effectiveness without diluting anti-money laundering enforcement.
To begin with, Parliament should legislatively mandate proportionate attachment under PMLA where insolvency proceedings have commenced. If only a portion of an asset's value represents alleged proceeds of crime, the statute should enable ring-fencing of the tainted portion, leaving the balance available for resolution subject to appropriate safeguards. Blanket attachment of operational undertakings destroys enterprise value without necessarily improving the State's eventual confiscation recovery, since liquidation typically realizes lower value than a going-concern sale.
Building on this, a statutory coordination mechanism between the NCLT and the PMLA Adjudicating Authority is also overdue. Once CIRP commences, both fora should be required to exchange information on a time-bound basis and the PMLA Adjudicating Authority should be obligated to consider whether maintaining an attachment through CIRP would frustrate a bona fide resolution, with power to conditionally relax the attachment pending final confiscation proceedings. This is not a hierarchy between the two statues but rather an institutional dialogue that neither statute currently provides for.
Finally, The connected persons test warrants recalibration. Rather than an all-or-nothing exclusion based on broad associational proximity, Section 32A should focus its disqualification on persons demonstrably implicated in the predicate offence, supplemented by enhanced disclosure obligations for acquirers with prior group relationships. This would preserve deterrence while removing the chilling effect of a standard that bidders currently treat as uninsurable risk.
Author is a Law student at ILS Law College, Pune. Views are personal.