Section 32A of Insolvency and Bankruptcy Code

The Supreme Court recently upheld the validity of Section 32 A of the Insolvency and Bankruptcy Code. Under its judgement, the apex court pronounced that the successful bidders for a corporate debtor will be immune from any investigations conducted by an investigating agency (like Enforcement Directorate or other statutory bodies such as SEBI) under the Insolvency and Bankruptcy Code.

Supreme Court Judgement

The SC said that it is important for IBC to attract bidders who will offer a fair value for the corporate debtor. This is essential to ensure timely completion of corporate insolvency resolution process. The SC also said that these bidders should be provided protection from misdeeds of the past. The protections should also extend to the assets of the corporate debtor.

Section 32A of IBC

Under the section the corporate debtor who has committed an offence prior to the commencement of the insolvency resolution process will not be prosecuted.

The Section 32A provides immunity to the corporate debtor and its property. However, the protection is provided when there is an approval of resolution plan that leads to change of management of control.

The petitioner argued in the Supreme Court that this provision is constitutionally incorrect. This is because it provides an undeserved immunity to the property.

Justification in Simple Words

According to the SC, the Section 32 A is essential to avoid delay in several big-ticket cases. For instance, take the case of Bhushan Power and Steel. The company became bankrupt and admitted to insolvency in 2017. It owed more than Rs 47,000 crores to banks and Rs 780 crores to creditors. After hard prolonged battle JSW Steel won the rights to take over Bhushan Power and Steel. Meanwhile, before JSW Steel could take over, the Enforcement Directorate came in and alleged Bhushan Power with fraud of Rs 4,000 crores in a bank loan under the Prevention of Money Laundering Act. Ethically, the actions of ED are right! However, the company is facing bankruptcy due to such wrong deeds and cannot be sued further. Therefore, according to SC during Insolvency Resolution, focus should be on resolving the issue.

Month: Current Affairs - January, 2021