Section 32A of IBC : Section 32A: Liability For Prior Offences, Etc

Explanation using Example

Imagine a company, XYZ Pvt. Ltd., which was involved in financial fraud before it went into the corporate insolvency resolution process (CIRP). After the CIRP started, a new company, ABC Corp, submitted a resolution plan that was approved by the National Company Law Tribunal (NCLT). ABC Corp was not associated with the previous management of XYZ Pvt. Ltd. and had no role in the fraud.

Under Section 32A of the Insolvency and Bankruptcy Code, 2016:

• XYZ Pvt. Ltd. would no longer be liable for the fraud committed before the CIRP, and cannot be prosecuted for that offence after the approval of the resolution plan by NCLT.
• The assets of XYZ Pvt. Ltd. that are now under the control of ABC Corp, due to the resolution plan, cannot be seized or attached by authorities in connection with the past fraud.
• However, individuals from XYZ Pvt. Ltd., who were involved in the fraud, would still be liable and could be prosecuted for their actions.

This provision helps in making the company attractive for new investors, who can be assured that they won't inherit the legal liabilities for offences committed by the previous management.