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Shot in the arm for acquisitions under IBC: A walk through the amendment and its implications

The attempt at clearing the logjam of various challenges posed before corporate and investors who embark on acquisition of companies is commendable.

June 04, 2020 / 07:25 PM IST

Sonam Chandwani

In the background of the pandemic, depressionary economic forces have suffocated numerous industries, pulling back a curtain on how fragile, intertwined and financialized the Indian economy is.

As India Inc. oscillates between jumpstarting the economy or ensuring health and safety by way of a lockdown, several relief measures have been introduced to stymie financial losses and find new monetary resources for strengthening the weakening coffers.

Introduced in 2016, the Insolvency and Bankruptcy Code (IBC), was described as 'a straightforward and unsurprising indebtedness law', which is put through a litmus test in the pretext of the pandemic.

Rightly hailed as an important legislative reform, the IBC is expected to resolve the prevailing non-performing assets (NPA) crisis, the resultant logjam in availability of credit, and the consequential impact on growth.


However, in the recent past, the IBC failed to notch up recoveries, barring a few marquee cases. This framework facilitates a double-coup of distribution of monies to creditors while reviving cash-strapped companies.

Furthermore, the IBC is designed to put a stay on all civil proceedings against the Corporate debtor upon the commencement of the Corporate Insolvency Resolution Process at the appropriate tribunal, thereby trivialising and ousting other remedies made available to creditors under the law.

One of the biggest challenges for potential acquirers under IBC have been historical or ‘legacy’ issues which may linger on post the acquisition, which deterred potential acquirers as it could attach significant financial and criminal liability on the acquirers post the acquisition of the target company under IBC.

In the backdrop of COVID-19, the Indian courts and government threw light over various aspects of the IBC which is likely to provide potential acquirers considerable comfort with respect to ghosts of the past, pertaining to the target company or corporate debtor.

Recently, the Insolvency and Bankruptcy Code (Amendment) Bill, 2020 introduced Section 32A, which aims to safeguard the interests of the acquirer under the CIRP and deals with assets of the corporate debtor pursuant to any offence or proceedings against the corporate debtor committed prior to the acquisition, and subsequently accords immunity to a corporate debtor and its assets from any prosecution, action, attachment, seizure, retention or confiscation upon approval of a resolution plan if the resolution plan results in the change in the management or control of the corporate debtor.

However, this immunity is available only in case the acquirer (a) was not a promoter or in the management or control or a related party of the corporate debtor prior to the acquisition; or (b) has not abetted or conspired for the offence, in the opinion of the relevant authority, and has submitted or filed a report or complaint to the relevant authority.

The benefits of this are also available to persons not falling within the conditions mentioned in Section 32(1).

This would be a significant jolt for potential acquirers, where the obligation of the corporate indebted person has been ring-fenced and solidified under the IBC. This would likewise give further solace to acquirers to secure assets under IBC, instead of some other system since 'legacy' or chronicled issues are diminished to a significant degree.

While the above alterations and changes have managed a large portion of the 'ghosts of the past' for potential bidders, it is to be perceived how potential contractual debates for the period preceding the inception of CIRP which are found post the acquisition are managed.

For example, in the event that an agreement provider post the procurement of the corporate account holder, finds any fiscal case or guarantee for misrepresentation against the corporate borrower for the period preceding the commencement of the CIRP, will the corporate indebted person post the obtaining be exonerated of any obligation versus such cases.

This turns out to be much increasingly appropriate when the break or misrepresentation could have been distinguished preceding the commencement of the CIRP by method of sensible perseverance by the provider.

Such debates are one of the last potential concerns outstanding to give potential bidders a flat out fresh start to gain focuses under the IBC, and the reality of the situation will become obvious eventually if a change or a choice by the legal specialists would settle this for either party.

At the outset, such instances are likely to result in the assets or properties being purchased illegally and subsequently being legalized in the hands of the successful resolution applicant with an added immunity against any and all future action against such illegally acquired property.

The far reaching implications of such unlawful enjoyment and exemption remain to be tested judicially, but it can be stated that the IBC has taken a step in the right direction. The attempt at clearing the logjam of various challenges posed before corporate and investors who embark on acquisition of companies is commendable and clarifications could go a long way in providing certainty to the acquirer and support the overall intention of timely, faster, and efficient resolution of NPAs in India.

The author is Managing Partner at KS Legal & Associates.

Disclaimer: The views and investment tips expressed by investment expert on are his own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.

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