New Delhi: The government plans to amend the Insolvency and Bankruptcy Code (IBC) to provide immunity to companies taking over stressed assets from prosecution for financial crimes committed by erstwhile promoters.
This will help make the insolvency process more attractive for the bidders and instil confidence in them, sources said. The government may move an amendment to the Insolvency and Bankruptcy Code 2016 during the current Winter Session of Parliament. The amendment comes after several companies that are vying for assets being auctioned under IBC expressed concern regarding getting into legal trouble over the cases against previous promoters.
In many of the cases under insolvency, the promoters are under investigation by various agencies, the sources said. "We are working out a mechanism where the resolution applicant, who through this entire court supervised process is acquiring a stressed asset as a going concern, will not be encumbered by the criminal liability relating to the company which has been caused by the previous management," an official said.
A clear direction on this will not allow occurrence of cases like Bhushan Power and Steel Ltd (BPSL). Last month, the Enforcement Directorate (ED) had attached BPSL's land, buildings, plant and machinery in Odisha worth more than Rs 4,000 crore in a case related to alleged diversion of bank funds, delaying the resolution process under which JSW Steel was set to take over the company.
Following the development, the National Company Law Appellate Tribunal (NCLAT) asked the ED and the corporate affairs ministry to reach a consensus on the issue of attachment of assets of BPSL. While the ED is of the opinion that it can attach the property of BPSL under the Prevention of Money Laundering Act (PMLA), the ministry has been maintaining that the agency cannot do so as proceedings under the IBC are on.