WHETHER SECTION 32A OF IBC IS A BOON OR CURSE?
HOW SECTION 32A OF IBC CODE OFFERS IMMUNE FROM ATTACHMENT BY THE ENFORCEMENT DIRECTORATE TO THEASSETS OF CORPORATE DEBTOR
WHETHER
SECTION 32A OF IBC IS A BOON OR CURSE?
SECTION 32A OF IBC IS A BOON OR CURSE?
Section 32A of IBC code which was inserted through IBC Amendment Act
2020 seeks to provide immunity to a
corporate debtor and its assets from any prosecution, action, attachment,
seizure, retention or confiscation upon approval of a resolution plan if the
resolution plan results in the change in the management or control of the
corporate debtor.
2020 seeks to provide immunity to a
corporate debtor and its assets from any prosecution, action, attachment,
seizure, retention or confiscation upon approval of a resolution plan if the
resolution plan results in the change in the management or control of the
corporate debtor.
The Section 32A appears to have been introduced as a result of the
litigation and ambiguity surrounding JSW Steel Limited’s resolution plan for
Bhushan Power & Steel Limited.
litigation and ambiguity surrounding JSW Steel Limited’s resolution plan for
Bhushan Power & Steel Limited.
In the aforesaid corporate insolvency resolution process, JSW Steel’s
resolution plan was approved by the Adjudicating Authority with certain
modifications on September 5, 2019. Shortly thereafter, on October 10, 2019,
the Enforcement Directorate attached certain assets of Bhushan Power under
Section 5 of the Prevention of Money Laundering Act, 2002 (PMLA).
resolution plan was approved by the Adjudicating Authority with certain
modifications on September 5, 2019. Shortly thereafter, on October 10, 2019,
the Enforcement Directorate attached certain assets of Bhushan Power under
Section 5 of the Prevention of Money Laundering Act, 2002 (PMLA).
JSW VS ENFORCEMENT DIRECTORATE
The attachment by the Enforcement Directorate was challenged by JSW Steel
before the National Company Law Appellate Tribunal (NCLAT).
before the National Company Law Appellate Tribunal (NCLAT).
Whilst JSW Steel’s Appeal was pending adjudication, the Insolvency and
Bankruptcy Code (Amendment) Ordinance, 2019 was promulgated. As a result, the
NCLAT took into account the Ordinance and the proposed Section 32A therein and inter alia called upon
the Enforcement Directorate to clarify as to whether or not JSW Steel’s
Resolution Plan would be covered under Section 32A.
Bankruptcy Code (Amendment) Ordinance, 2019 was promulgated. As a result, the
NCLAT took into account the Ordinance and the proposed Section 32A therein and inter alia called upon
the Enforcement Directorate to clarify as to whether or not JSW Steel’s
Resolution Plan would be covered under Section 32A.
In response, the Enforcement Directorate took a stand that the newly introduced
Section 32A would not apply to JSW Steel’s resolution plan for various reasons
including its assertion that JSW Steel is a related party to Bhushan Power.
Section 32A would not apply to JSW Steel’s resolution plan for various reasons
including its assertion that JSW Steel is a related party to Bhushan Power.
APPEAL TO SUPREME COURT AGAINST NCLAT’S ORDER
Consequently, the Enforcement Directorate took a stand that the benefit
of Section 32A (2) would not be available to Bhushan Power’s properties
attached by the Enforcement Directorate under the PMLA.
of Section 32A (2) would not be available to Bhushan Power’s properties
attached by the Enforcement Directorate under the PMLA.
Rejecting the Enforcement Directorate’s arguments, the NCLAT held that
the Enforcement Directorate’s attachment was illegal and without jurisdiction.
Relying on Section 32A, the NCLAT further held that Bhushan Power’s assets are
immune from attachment by the Enforcement Directorate.
the Enforcement Directorate’s attachment was illegal and without jurisdiction.
Relying on Section 32A, the NCLAT further held that Bhushan Power’s assets are
immune from attachment by the Enforcement Directorate.
Whilst parting, the NCLAT clarified that its decision will not come in
the Enforcement Directorate’s way to proceed with investigation or to take any
action in accordance with law against Bhushan Power’s erstwhile promoters and
officers.
the Enforcement Directorate’s way to proceed with investigation or to take any
action in accordance with law against Bhushan Power’s erstwhile promoters and
officers.
NCLAT’s aforesaid order is currently challenged before the Supreme Court
of India and is sub-judice (Civil Appeals)
of India and is sub-judice (Civil Appeals)
Anil Goel vs. Dy Director, Enforcement
Directorate, New Delhi
Directorate, New Delhi
Introduction of Section 32A of IBC is quite a dominant and overriding
amendment to IBC read with its Section 238 of IBC 2016 having the ability to
cease any/all prosecution, attachment and/or seizure against the corporate
debtor under any law for the time being in force
amendment to IBC read with its Section 238 of IBC 2016 having the ability to
cease any/all prosecution, attachment and/or seizure against the corporate
debtor under any law for the time being in force
Section 32A is a sweeping amendment in every sense. Not only does it
override the PMLA as in the JSW Steel case, but in a given case; has the
ability to cease any prosecution, action, attachment, seizure, retention or
confiscation against a corporate debtor and its property/assets under any law
for the time being in force. Section 32A being a non-obstante provision itself,
read with Section 238 of the Code, is arguably the Code’s most powerful and
overriding amendment till date.
override the PMLA as in the JSW Steel case, but in a given case; has the
ability to cease any prosecution, action, attachment, seizure, retention or
confiscation against a corporate debtor and its property/assets under any law
for the time being in force. Section 32A being a non-obstante provision itself,
read with Section 238 of the Code, is arguably the Code’s most powerful and
overriding amendment till date.
Hon'ble NCLT, Kolkata Bench, in the case of Anil Goel vs. Dy Director,
Enforcement Directorate, New Delhi in the case of Varrsana Ispat Limited
whereby the Liquidator is permitted to sell the assets which are attached by
Enforcement Directorate under Prevention of Money Laundering Act.
Enforcement Directorate, New Delhi in the case of Varrsana Ispat Limited
whereby the Liquidator is permitted to sell the assets which are attached by
Enforcement Directorate under Prevention of Money Laundering Act.
Anil Goel vs. Dy Director, Enforcement Directorate, New Delhi
The Corporate Debtor is a steel plant and is being run as a going
concern doing a turnover of about 900 Crores p.a.
Now we would be selling the Corporate Debtor as a going
concern and then will apply to NCLT under newly inserted section 32A of IBC for
de-attachment and protection of the buyer. This is said to be the first order of its kind in the
Country after the promulgation of section 32A in IBC
concern doing a turnover of about 900 Crores p.a.
Now we would be selling the Corporate Debtor as a going
concern and then will apply to NCLT under newly inserted section 32A of IBC for
de-attachment and protection of the buyer. This is said to be the first order of its kind in the
Country after the promulgation of section 32A in IBC
whether a legislation with primarily civil and commercial consequences,
can, in such manner, override any and all other legislations governing their
respective individual fields. Pertinently, the NCLAT, has, in Shah Bros. Ispat (P) Ltd.[3] held that criminal
proceedings such as proceedings
can, in such manner, override any and all other legislations governing their
respective individual fields. Pertinently, the NCLAT, has, in Shah Bros. Ispat (P) Ltd.[3] held that criminal
proceedings such as proceedings
RELIEF OFFERED BY NEW SECTION 32A OF IBC PROVISIONS
Section 32A will also have to be tested on whether it can extinguish
avenues available to complainants / authorities / enforcement agencies under
various criminal statutes in such manner by the mere approval of a resolution
plan. This would amount to Section 32A overriding such statutory remedies.
avenues available to complainants / authorities / enforcement agencies under
various criminal statutes in such manner by the mere approval of a resolution
plan. This would amount to Section 32A overriding such statutory remedies.
Section 32A would bar the attachment of a corporate debtor’s property albeit it being a property
acquired through ‘proceeds of crime’. It could even be
possible that such property was acquired shortly prior to the commencement of
the corporate insolvency resolution process and therefore, the Enforcement
Directorate and/or any other authority was unable to conclude its investigation
till such time that the resolution plan was approved.
acquired through ‘proceeds of crime’. It could even be
possible that such property was acquired shortly prior to the commencement of
the corporate insolvency resolution process and therefore, the Enforcement
Directorate and/or any other authority was unable to conclude its investigation
till such time that the resolution plan was approved.
Varrsana Ispat
Limited VS NCLT, Kolkata
Limited VS NCLT, Kolkata
Hon'ble NCLT, Kolkata Bench, in the case of Anil Goel vs. Dy Director,
Enforcement Directorate, New Delhi in the case of Varrsana Ispat Limited
whereby the Liquidator is permitted to sell the assets which are attached by
Enforcement Directorate under Prevention of Money Laundering Act.
Enforcement Directorate, New Delhi in the case of Varrsana Ispat Limited
whereby the Liquidator is permitted to sell the assets which are attached by
Enforcement Directorate under Prevention of Money Laundering Act.
The Corporate Debtor is a steel plant and is being run as a going
concern doing a turnover of about 900 Crores p.a.
concern doing a turnover of about 900 Crores p.a.
concern and then will apply to NCLT under newly inserted section 32A of IBC for
de-attachment and protection of the buyer. This is said to be the first order of its kind in the
Country after the promulgation of section 32A in IBC
NCLAT further held that Bhushan
Power’s assets are immune from attachment by the Enforcement Directorate.
Power’s assets are immune from attachment by the Enforcement Directorate.
LESSONS LEARNED
Section 32A of IBC can be used for de-attachment of attachment order
issued by any enforcing authorities and also offers protection to the buyer who
buys the property under Insolvency proceedings
issued by any enforcing authorities and also offers protection to the buyer who
buys the property under Insolvency proceedings
The NCLAT in JSW steel case that its decision will not come in the
Enforcement Directorate’s way to proceed with investigation or to take any
action in accordance with law against Bhushan Power’s erstwhile promoters and
officers.
Enforcement Directorate’s way to proceed with investigation or to take any
action in accordance with law against Bhushan Power’s erstwhile promoters and
officers.
Such instances would result in the assets/properties
purchased illegally at the outset, being legalized in the hands of the
successful resolution applicant and; as an additional safeguard, provide the
successful resolution applicant with immunity against any and all future action
against such illegally acquired property.
Whether
by virtue of Section 32A of IBC all the statutory remedy under the criminal
statutes will come to a halt by mere approval of resolution plan which is a
purely a civil and commercial action.
by virtue of Section 32A of IBC all the statutory remedy under the criminal
statutes will come to a halt by mere approval of resolution plan which is a
purely a civil and commercial action.
LESSONS LEARNED
How
will the amendment address the law laid by Delhi High Court in the case of the Deputy director of Directorate of Enforcement vs Axis Bank wherein it was held
that objective of PMLA is for distinct purpose and IBC cannot prevail over the
former.
will the amendment address the law laid by Delhi High Court in the case of the Deputy director of Directorate of Enforcement vs Axis Bank wherein it was held
that objective of PMLA is for distinct purpose and IBC cannot prevail over the
former.
What
would be the fate of the attachment of assets under the Negotiable Instrument
Act, 1881, if the attachment is pending while resolution plan is approved when
the NCLAT has in Shah Brothers Ispat Pvt. Ltd vs
P. Mohanraj & Ors. exempted proceedings under Negotiable Instrument Act,
1881 from the scope of IBC.
would be the fate of the attachment of assets under the Negotiable Instrument
Act, 1881, if the attachment is pending while resolution plan is approved when
the NCLAT has in Shah Brothers Ispat Pvt. Ltd vs
P. Mohanraj & Ors. exempted proceedings under Negotiable Instrument Act,
1881 from the scope of IBC.
Another
absurdity which is staring for adjudication by the higher courts/legal
authorities is that what would happen to attachments of the assets of the
corporate debtor which are acquired through “proceeds of crime” and the
investigation by ED is underway while the resolution plan is approved.
absurdity which is staring for adjudication by the higher courts/legal
authorities is that what would happen to attachments of the assets of the
corporate debtor which are acquired through “proceeds of crime” and the
investigation by ED is underway while the resolution plan is approved.
SECTION 32A OF IBC IS really A BOON to all the stakeholders
It facilitates to sell the debtors properties as a going concern
despite of any attachment order which will be helpful to employees working in
such factories , shareholders , creditors and public .
despite of any attachment order which will be helpful to employees working in
such factories , shareholders , creditors and public .
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