Corporate debtors set to get IBC immunity against attachment of assets

The corporate affairs ministry (MCA) is planning to come up with a mechanism to ensure that the assets of corporate debtors under the insolvency resolution process are unencumbered and insulated from attachment by probe agencies.

A senior government official told Business Standard: “Our position is very clear … We will carve out something in the insolvency and bankruptcy code to make sure assets remain unencumbered.”

The MCA and the Enforcement Directorate (ED), which reports to the ministry of finance, have locked horns over the attachment of assets of Bhushan Power and Steel(BPSL).

While the ED says it can attach the property of BPSL under the Prevention of Money Laundering Act, the ministry maintains it cannot do so because the company is going through insolvency proceedings.

“Once the resolution plan is approved, the successful applicant cannot be burdened with the wrongdoing of the corporate debtor,” the senior official said.

The MCA has received several representations from companies including JSW and Tata Steel regarding issues that cropped up after the closure of the insolvency and bankruptcy process. 

The MCA said in its affidavit to the National Company Law Appellate Tribunal: “It is submitted that if any corporate debtor is undergoing investigation by the Central Bureau of Investigation, Serious Fraud Investigation Office (SFIO) and or the Directorate of Enforcement (ED), such investigations are separate and independent of the Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code and both can run simultaneously and independent of each other.”

The ministry had also said any threat of attaching the assets of the corporate debtor or subjecting the debtor to proceedings for the wrongdoing of the previous management would defeat the purpose and scheme of the corporate insolvency resolution process. Assuring potential bidders, Finance and Corporate Affairs Minister Nirmala Sitharaman had said in Parliament earlier that no criminal proceedings would be taken up against the winning applicant and only the corporate debtor would be held liable for such action.  

Sitharaman recently said the government was trying to resolve the differences between the MCA and ED.

“I had a meeting with both the revenue and corporate affairs secretaries. We recognised that there was an issue,” the finance minister had said.

The ministry will soon issue guidelines for regulators to protect winning bidders. JSW Steel in September approached the National Company Law Appellate Tribunal, seeking immunity from criminal proceedings in the fraud investigation against Bhushan Power and Steel.

In its plea before the appellate tribunal, JSW Steel said it was apprehensive about the reports of fraud occurring at Bhushan Power. 

The appellate body put the Rs 19,700-crore payout by JSW Steel to buy the debt-ridden company on hold until further orders.

The three-year-old Insolvency and Bankruptcy Code was amended recently to make a resolution plan binding on all stakeholders including the central government, any state government, or local authority to whom a debt in respect of the payment of the dues may be owed.