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31 December 2019

Protection to Corporate Debtors for offences prior to commencement of CIRP – IBC (Amendment) Ordinance, 2019 promulgated

In order to protect the Corporate Debtor and its assets from liabilities for offences committed prior to the commencement of Corporate Insolvency Resolution Process (CIRP), the President of India has on 28th of December 2019 promulgated an Ordinance – Insolvency and Bankruptcy (Amendment) Ordinance, 2019.

The Ordinance also provides for many other amendments in the Insolvency and Bankruptcy Code (IBC), as earlier proposed in the Insolvency and Bankruptcy (Second Amendment) Bill, 2019 . It was necessitated because the Bill which was introduced in the Parliament on 12th of December could not be taken up for consideration before the end of the Parliament’s winter session.

No liability on corporate debtor for offence prior to CIRP

As per new Section 32A inserted in IBC, the liability of a corporate debtor for an offence committed under any law prior to the commencement of CIRP shall cease and the corporate debtor will not be prosecuted for such an offence from the date the resolution plan is approved by the adjudicating authority.

There are, however, conditions attached to this benevolent provision. This benefit is available only if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not,

  • a promotor, or in the management or control of the corporate debtor or a related party of such person, or
  • a person who abetted or conspired for the commission of the offence according to the relevant investigating authority, and where the investigating authority has submitted a report or filed a complaint to the relevant statutory authority or Court.

The provision also provides that if prosecution has been initiated during CIRP, Corporate Debtor shall stand discharged from the date of approval of the resolution plan.

It may be however be noted that no immunity will be provided to certain officers of the corporate debtor even if the corporate debtor’s liability ceases according to the new provisions. As per the list,

  • “Designated partner” of an LLP;
  • “Officer who is in default” in case of Company [Section 2(60) of Companies Act, 2013];
  • Officer in charge of or responsible for conduct of business of the Corporate Debtor; and
  • Officer associated with corporate debtor in any manner,

if involved directly or indirectly in commission of the offence, as per the report submitted or complaint filed by the investigating authority under the relevant law, shall continue to be liable to be prosecuted and punished for the offence committed by the corporate debtor even if the latter’s liability has ceased.

No action against property of corporate debtor

Further, as per provisions of Section 32A(2) of the IBC, no action including attachment, seizure, retention or confiscation of property of the corporate debtor can be taken in relation to an offence committed prior to the commencement of CIRP, in case such property is covered by the resolution plan approved by NCLT.

Further, conditions relating to change in control or management, as present for the liabilities against the corporate debtor, are also relevant for the action against property of the corporate debtor.

It may however be noted that action against the properties of any person other than the corporate debtor or the person who acquired such properties through CIRP or liquidation process, is not barred, and action may be taken under the relevant law.

Other amendments in IBC

The Insolvency and Bankruptcy (Amendment) Ordinance, 2019 also provides for many other amendments in the Code. Few of these amendments are highlighted below.

Section 14 providing for the moratorium has been amended to provide that a licence, permit, registration, quota, concession, clearance or a similar grant or right given by the government/authority shall not be suspended or terminated on grounds of insolvency. As per Explanation inserted in Section 14(1), the only condition to be fulfilled for this purpose is that there is no default in payment of current dues arising for the use or continuation of such licence, registration, etc.

Section 23 of the IBC has been amended to provide that the resolution professional (RP) shall continue to manage the operations of the corporate debtor after the expiry of the CIRP period until an order approving the resolution plan or appointing of liquidator, is passed.

It may be noted that the earlier proviso to Section 23(1) which was inserted by IBC (Second Amendment) Act, 2018, with effect from 6-6-2018, did not provide for continuation of RP until an order appointing a liquidator is passed.

According to a proviso inserted in Section 7(1) of IBC, in case of allottees under a real estate project, the application for initiating CIRP must be filed jointly by not less than one hundred of such allottees or not less than ten percent of the total number of allottees, whichever is less.

Further, as per the latest amendments, the NCLT would be required to appoint an interim resolution professional on the insolvency commencement date. The earlier provisions in Section 16(1) of the IBC provided that the interim resolution professional is to be appointed within 14 days from the insolvency commencement date.

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