Supreme Court Endorses Protection of New Owners in IBC Cases
India’s Supreme Court has upheld the constitutionality of provisions of the Section 32A of Insolvency and Bankruptcy Code that grants legal immunity to the successful bidder. A three judge Supreme Court bench headed by Justice Rohinton F Nariman, dismissing petitions challenging the rules, ruled "A bankrupt company and its assets cannot face criminal proceedings once it is sold to new owners. There is imperative need to attract resolution applicants who would not shy away from offering reasonable and fair value. Extinguishing criminal liability will help the new management to make a clean break with the past and start on a clean slate.”
However, the former management of the firms will face prosecution, according to the norms.
The law granting immunity was first passed by a bankruptcy tribunal last year.
However the judgment was not passed in the Bhushan Power Case where JSW Steel is seeking protection under Section 32A, as a precondition for implementing the INR 19700 crore resolution plans. This SC judgment was in a separate appeal, which among other provisions had challenged Section 32A. The top court has, therefore, given clarity on the validity of Section 32A.