The Supreme Court has held that the 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.
- 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 objectives of the Code.
What is Section 32A?
- 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 offence.
What were the challenges?
- Since the IBC came into being in 2016, the implementation of the resolution plan of several big cases has been delayed because of various challenges mounted by its own agencies and regulators.
- For example, a debt-laden company, admitted into insolvency in 2017, owes more than Rs 47,000 crore to banks and other financial institutions.
- After a prolonged bidding battle, another won the rights to take over it with a bid of Rs 19,700 crore.
- However, before it could move to take over, the ED/SEBI swooped in, and attached assets worth Rs 4,000 crore citing alleged fraud in a bank loan under the Prevention of Money Laundering Act (PMLA).
Observations made by the SC
- 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.