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SC ruling on Section 32A of IBC

Section 32A was introduced in the IBC by the amendment act of March, 2020.  

By this section, government provided protection to successful bidders during corporate insolvency resolution process (CIRP). These bidders offer reasonable and fair value for the corporate debtor.    

Why this Provision was introduced? 

Since the implementation of IBC in 2016, insolvency resolution plan for many big companies could not be implemented. It was because of investigations by agencies like ED and SEBI.    

  • For example, In 2017 Bhushan Power and Steel with more than Rs. 47,000 crore debt, entered into insolvency proceeding. After a long bidding process, JSW Steel won the rights to take over Bhusan steel. However, ED jumped in and attached their assets worth Rs. 4,000 crores for the fraud by the company’s previous owner.  

What was the case and ruling of Supreme Court on that? 

Petitioners of the case argued that section 32A closes the door for individual investors to recover their claims from the new management. Thus, they are left with the only option of pursuing remedies under criminal law against the former management. 

  • Supreme Court in its recent decision upholding the validity of Section 32A of IBC.  
  • Justice Joseph stated that the purpose of the amendment was to enable a new and clean beginning for the new management and a clean break from the company’s past.  
  • Thus, new management cannot be prosecuted for an offence committed prior to the commencement of the corporate insolvency resolution process.  
  • It will also be immune from investigations being conducted either by any investigating agencies ED or other statutory bodies such as SEBI. Immunity is granted only for the matters linked with prior management.  
  • However, such immunity would be applicable only if there are an approved resolution plan and a change in the management control of the corporate debtor.  

This will provide the corporate bidders with confidence to proceed with confidence while bidding on disputed companies and their assets. 

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