MCA norms to shield IBC bidders soon

Move to prevent reopening of claims, protect acquired assets

The government will soon come up with detailed guidelines for regulators and tax authorities to protect the winning bidders in Insolvency and Bankruptcy Code (IBC) cases against the reopening of claims and threat to the assets acquired by them.

The Ministry of Corporate Affairs (MCA) has received several representations from companies such as JSW Steel and Tata Steel regarding issues that cropped up after the closure of the IBC process.

The ministry is also looking at the best course of action to ensure the assets of companies under probe are not attached.

“Once a company has gone through the IBC process, all claims are extinguished. We will issue comprehensive guidelines to make the intent of the law very clear,” a senior government official told Business Standard. However, contradictory high court orders have made bidders jittery.

Union Finance Minister Nirmala Sitharaman, in her address to Parliament during the Budget session, had assured that no criminal proceedings would be taken up against the winning applicant, and that only the corporate debtor would be held liable for such proceedings.

The MCA, if required, would seek the Cabinet’s nod to finalise procedures it expects other government agencies to follow with respect to the winning bidders, the official added.

Government authorities such as the Directorate General of Foreign Trade and central boards of direct and indirect taxes and customs are expected to fall in line once the government makes it clear in its guidelines.

The guidelines will be in keeping with the recent amendment to the IBC that made a resolution plan binding upon all stakeholders, including the central government, state governments and local authorities, to whom a debt in respect of the payment of the dues may be owed.

IBC cases in sectors such as telecom, mining and real estate have faced hurdles when various government departments insisted on separate approval processes irrespective of whatever is approved under the IBC.

“One important point that appears to have been missed in this amendment is the binding nature of the approved resolution plans over judiciary across the country. If the approved resolution plan also could have been made binding on judiciary or other tribunals, then the inconsistent view on how to deal with 'contingent liabilities' could have been addressed,” Anshul Jain, partneradvisory services, PWC, said.

Suharsh Sinha, partner, AZB & Partners, pointed out that the latest IBC amendment took care of tax liabilities and, on the face of it, was broad enough to include investigative agencies. But more clarity was required to indemnify the corporate debtor from criminal proceedings, he said.

Sources close to JSW said that if the corporate debtor got implicated, then it would impact the resolution process and, in turn, the resolution applicant.

JSW Steel had sought relief from statutory authorities in connection with its resolution plan for Bhushan Power & Steel. However, the National Company Law Tribunal (NCLT) approved its ~19,350 crore resolution plan earlier this month without granting the reliefs. The company has appealed against the NCLT order.

In its appeal, JSW has said that in the absence of protection as prayed and liability resulting from criminal proceedings, the appellant would not be liable to implement the resolution plan as it would be unviable and unfeasible.

JSW'S concerns stemmed from its experience with Monnet Ispat & Energy, also acquired under the IBC, jointly with AION. Claims from different government departments had come up in Monnet.

Tata Steel, which acquired Bhushan Steel for ~35,200 crore, has also faced claims from different authorities.

Tata Steel BSL (formerly Bhushan Steel) mentioned in its annual report that the company was impleaded in a proceeding initiated by the Directorate of Enforcement (ED) relating to the confirmation of a provisional attachment order (PAO) of ~50 lakh (PMLA proceeding).

The amount was seized by the Central Bureau of Investigation in relation to an allegation of payment of illegal gratification made against the previous managing director of the company. The company contested the PMLA proceedings, and the adjudicating authority vide its order dated September 24, 2018, refused to confirm the PAO in the proceedings against the company and other defendants.

The ED, however, filed an appeal against the order before the Appellate Tribunal, Prevention of Money Laundering Act, which is being contested by the company.