New Delhi, July 7 (IANS) 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.
Noting that such confusions and legal tangles have continued even after introduction of Section 32A, Manoj Kumar of Corporate Professionals told IANS, “This section needs proper reinterpretation. Hence it should go to some court of law. It can’t be settled at the tribunal level.”
According to him, 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.
Daizy Chawla, Senior Partner, Singh & Associates, said as the recent amendments were in place the authorities, like the Serious Fraud Investigation Office (SFIO) and the SEBI, would like the courts to decide and close the matter once and for all, instead of they themselves deciding.
“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 apex 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,” Chawla said.
These were procedural issues that might continue due to precedence available within the authorities, but gradually come to an end, she said.