Mumbai court discharges DHFL in money laundering case, cites immunity under IBC

Mumbai: A special court in Mumbai has discharged the now-defunct Dewan Housing Finance Corp Ltd (DHFL) in a Rs 5,050 crore money laundering case, ruling that the company under new management is entitled to statutory immunity under the Insolvency and Bankruptcy Code (IBC).

The court, however, clarified that while DHFL as a corporate entity is discharged, the immunity does not extend to individuals involved in the case.

Special PMLA Court Judge RB Rote, in the order passed on February 2, ruled that DHFL is entitled to statutory immunity following its successful resolution process under IBC, a legislation that provides a time-bound process for insolvency resolution and liquidation of corporate entities and individuals.

The court order, made available on Wednesday, emphasised that the relevant IBC provision reveals that once the resolution plan has been approved by the adjudicating authority, the corporate debtor shall not be liable for a prior offence.

"The extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate," the court noted, citing Supreme Court precedents.

The court underlined that the immunity under IBC was not available to the "erstwhile officers/ directors..who were directly or indirectly involved in the commission of such offence prior to the commencement of Corporate Insolvency Resolution Process (CIRP)".

They shall continue to be "prosecuted and punished" for such an offence committed by the corporate debtor, the court noted.

Debt-ridden DHFL was acquired by Piramal Group in 2021 and merged into a group firm.

Yes Bank co-founder Rana Kapoor, his family members and former promoters of DHFL Kapil Wadhawan and Dheeraj Wadhawan are among the prime accused in the case.

As per the probe agency Enforcement Directorate (ED), Kapoor received several hundred crores of rupees in kickbacks over bogus loans extended by Yes Bank to DHFL and its group companies.

The ED has contended that Kapoor misused his position to gain undue financial benefits of Rs 5,050 crore for himself, his family members and associates by involving himself in bribery, corruption and money laundering.

DHFL's advocate, Karan Kadam, had previously submitted that, "the applicant Piramal Capital and Housing Finance Ltd (now known as Piramal Finance Ltd), has undergone a corporate insolvency resolution process under IBC 2016.

The resolution plan submitted by the firm for the corporate debtor was approved by the National Company Law Tribunal (NCLT) by an order dated June 7, 2021, Kadam argued.

He contended that as part of the approved resolution plan, the successful resolution applicant (SRA)- erstwhile Piramal Capital and Housing Finance Ltd, was reverse merged into the corporate debtor -DHFL -- such that the corporate debtor remained as the surviving legal entity.

The name of the newly merged entity was changed from Dewan Housing Finance Corporation Ltd to Piramal Capital and Housing Finance Ltd as on November 3, 2021.

Kadam submitted that the approval of the resolution plan has resulted in satisfaction of the following requirements as specified in Section 32A of the IBC.

The firm pointed out that the Bombay High Court had already discharged DHFL from the predicate offence (a component of a more complex criminal activity) being probed by the Central Bureau of Investigation (CBI).

The ED, however, contended that DHFL cannot be discharged because of the approval of the resolution plan by the NCLT or because of discharge in the predicate offence.

In the predicate offence (CBI case), there was no particular provision for prosecuting the company, said the probe agency.

However, in the Prevention of Money Laundering Act (PMLA), there is a specific provision that every person who, at the time the contravention was committed, was in charge and responsible for the conduct of business of a company as well as the company, shall be deemed to be guilty, it said.

The special court, after considering both submissions, ruled that "DHFL is a juristic person".

"Though section 70 of the PMLA (enacted in 2002) provides that a company shall be deemed to be guilty of the contravention, the immunity granted under section 32-A of IBC, which is a later enactment (2016), has an overriding effect," the court observed.

The judge concluded that the corporate debtor cannot be prosecuted if the conditions under section 32-A of the IBC are fulfilled.

Thus, the court, in view of IBC provisions, discharged the DHFL.