- Recently, the Supreme Court held that the successful bidders for a corporate debtor under the Insolvency and Bankruptcy Code (IBC) would be immune from any investigations being conducted either by any investigating agencies such as the Enforcement Directorate (ED) or other statutory bodies such as Securities and Exchange Board of India (SEBI).
Supreme Court Judgement / Observations
- In its judgment, the apex court upheld the validity of Section 32.
- It said it was important for the IBC to attract bidders who would offer reasonable and fair value for the corporate debtor to ensure the timely completion of the corporate insolvency resolution process (CIRP).
- Such bidders, however, must also be granted protection from any misdeeds of the past since they had nothing to do with it.
- Such protection, the court said, must also extend to the assets of a corporate debtor which will help banks clean up their books of bad loans.
- The apex court has, however, also said that such immunity would be applicable only if there are an approved resolution plan and a change in the management control of the corporate debtor.
- With the Supreme Court upholding the validity of Section 32 A will give confidence to other bidders to proceed with confidence while bidding on such disputed companies and their assets.
Why is the SC upholding Section 32A important?
- ince the IBC came into being in 2016, the implementation of resolution plan of several big ticket cases has been delayed because of various challenges mounted by its own agencies and regulators.
- For example, consider the case of Bhushan Power and Steel. The debt-laden company, admitted into insolvency in 2017, owes more than Rs 47,000 crore to banks and other financial institutions, and another Rs 780 crore to its operational creditors.
- After a prolonged bidding battle, JSW Steel won the rights to take over Bhushan Power with a bid of Rs 19,700 crore.
- However, before the Sajjan Jindal-led company could move to take over Bhushan Power, the ED swooped in, and attached assets worth Rs 4,000 crore citing alleged fraud in a bank loan taken by the company’s former owners and other cases under the Prevention of Money Laundering Act (PMLA).
Back to Basics
What is Insolvency and Bankruptcy Code (IBC) ?
- IBC was enacted on May 28, 2016, to effectively deal with insolvency and bankruptcy of corporate persons, partnership firms and individuals, in a time-bound manner.
- It has brought about a paradigm shift in laws aimed to maximize the value of assets, providing a robust insolvency resolution framework and differentiating between impropriety and business debacle.
- The predominant object of the Code is the resolution of the Corporate Debtor.
- It has been amended four times to resolve problems hindering the objectives of the Code.
What is Section 32A of IBC?
- In cases involving property of a corporate debtor, Section 32A covers any action involving attachment, seizure, retention, or confiscation of the property of the corporate debtor as a result of such Proceedings.
- It provides immunity to the corporate debtor and its property when there is the approval of the resolution plan resulting in the change of management of control of the corporate debtor.
- This is subject to the successful resolution applicant being not involved in the commission of the offense.