The Ministry of Corporate Affairs (MCA) will soon release a detailed set of guidelines to shield winning bidders in Insolvency and Bankruptcy Code (IBC) cases against reinstated claims on acquired assets, reported Business Standard.
Companies such as JSW Steel and Tata Steel had brought the issue to the government's notice after the closure of the IBC process for Bhushan Power & Steel.
JSW sought relief against an order by the National Company Law Tribunal (NCLT) for the Bhushan Steel resolution plan. Tata Steel which acquired Bhushan Steel faced claims from different authorities.
Resolution under IBC usually means excessive delays and major haircuts in claims for most of the entities. Many cases are also stuck in endless or subsequent litigation.
But once a company has gone through the IBC process, all claims are extinguished as per a government official who spoke to the publication. The guidelines will remove further impediments and make the law clear.
Contradictory high court orders in the past have made bidders jittery. To this, Finance Minister Nirmala Sitharaman in her 2019 Budget had specified that criminal proceedings would not be taken against the winning applicant. The corporate debtor will be held liable for such proceedings.
The official also said that the cabinet’s approval might be taken to finalise the guidelines that will bring consistency for the bidders.
Government agencies such as the Directorate General of Foreign Trade and central boards of direct and indirect taxes and customs will conform to the procedure. All stakeholders are expected to fall in line once the guidelines clarify on settling process of contingency liabilities.
As per the latest amendment to the IBC, this will be binding on every authority including the central and state governments.
But a PwC spokesperson told the paper that the approved resolution plan under IBC is not binding on the country's judiciary, which if done would bring consistency in these settlements.
Although investigative agencies are now included in the IBC amendment, more clarity is required to indemnify corporate debtor from criminal proceedings, Suharsh Sinha, partner at AZB & Partners told the paper.
As of June 2019, 2,162 accounts were referred to the IBC out of which only 120 have been resolved. The guidelines will safeguard these resolved cases.