IBC amendment must to ring-fence stressed assets from probing agencies

Though the recent NCLAT order staying Enforcement Directorate attachment of Bhushan Power and Steel asset would provide some comfort for winning bidders of other stressed companies, much would depend on the amendment to the Insolvency and Bankruptcy Code ring-fencing the assets under insolvency from other investigating agencies.

The outcome of this case may also have an impact on the insolvency process of Jet Airways. The former Chairman of now grounded Jet Airways Naresh Goyal is being investigated by Enforcement Directorate for diverting Rs 9,000 crore loan availed by the Indian company to its foreign subsidiaries, thus causing huge loss to exchequer. However, ED has not yet attached any asset of Jet Airways which is under insolvency process.

Advocate Zoheb Hossain appearing on behalf of the Directorate of Enforcement had said, in the Bhushan Power and Steel case the proceeds of crime involved property that have been attached by the Deputy Director of the Directorate of Enforcement. He has sought time till October 17 to file reply-affidavit. The Central Bureau of Investigation (CBI) will also file its reply affidavit by October 17. Both the investigating agency can also file a rejoinder before the next hearing in the case on October 23.

In its response, the Ministry of Corporate Affairs said before approving the Resolution Plan, NCLT hears all the objections raised and approves the resolution plan. Once approved, the resolution plan is binding on all stakeholders, including government agencies.

The provision of the Insolvency and Bankruptcy Code (Amendment) Act, 2019 by which Section 31(1) was amended, makes it amply clear that a resolution plan is binding on Central Government and all statutory authorities.

It is further submitted that the new management taking over the company after the IBC process cannot be held responsible for the acts of the previous management. In other words, no criminal liability can be fixed on the successful Resolution Applicant or its officials.

After completion of insolvency process under the IBC, there cannot be any attachment or confiscation of the assets of the corporate debtor by any enforcement.

However, the government has to clarify its stand with proper amendment to law. Ring fencing a stressed asset involving crime proceeds would dilute the effectiveness of Prevention of Money Laundering Act as the ill-gotten wealth are always ploughed backed into business to smoke-screen its traceability.

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