IBC’s section 32A needs elucidation to protect buyers: Experts

Although the government made an amendment to the Insolvency and Bankruptcy Code (IBC) to protect buyers of bankrupt companies, there seems to be no relief for some with litigations continuing and penalties being enforced by regulators for misdeeds of the insolvent firm’s previous management.

Experts feel clarity is required in the IBC’s Section 32A, introduced in December, which provides protection and immunity to buyers from criminal proceedings against the bankrupt firm’s previous promoters. The clarity, they feel, will come only when a court of law passes an order interpreting this section and settling the issues ones and for all.

In a recent order against Monnet Ispat & Energy, the Securities and Exchange Board of India (SEBI) imposed penalty for violation of disclosure norms 5 years ago. The company was acquired by a consortium, comprising JSW Steel and AION Investments Private II, in 2018 through the insolvency route.

Industry insiders and experts say the penalty should have been imposed on the company’s earlier management.

Also, the much prolonged resolution of Bhushan Power and Steel case still hangs fire as the Enforcement Directorate (ED) has not released the Rs. 4,000 crore assets, attached as part of criminal proceedings against the former promoters.

JSW Steel is again the acquirer and it’s not ready to pay the Rs. 19,700 crore offered amount to banks unless the ED releases the attached assets.

Legal issues also surfaced for Tata Steel BSL, formerly known as Bhushan Steel, the bankrupt company acquired by Tata Steel.

According to experts, Section 32A of the IBC requires proper reinterpretation and should be decided by a court of law. It can’t be settled at the tribunal level as interpretation of regulators is different. Litigations are continuing in several sectors and it’s very difficult to conclude. An order clarifying or giving a proper interpretation by a court of law or the Supreme Court can solve the issue.

Experts added that recently in the Tata Steel BSL case, the Delhi High Court set aside the SFIO’s summons to the new management, which has taken over the corporate debtor (Bhushan Steel). In future, the SFIO can internally refer to the decision, if it does not challenge it in the Supreme Court, as and when it would like to proceed against a new management with regard to offences/non-compliances prior to the corporate insolvency resolution process period.