Dated 28th October, 2020
Art 32A was added by amendment in Insolvency and Bankruptcy Code (Amendment) Act, 2020 (Amendment Act) by receiving the President’s Assent on 13 March 2020. The Amendment seems to have been enacted in furtherance of intent of the Code to ensure revival and continuation of the ‘Corporate Debtor’ as a going concern and Liquidation is to be only a last resort[1].
The Article discusses two parts of the Section Introduced, the first being the provision for immunity. Section 32A provides immunity to a corporate debtor against an offence that had been committed by him and against any action to be undertaken on his property/assets in relation to an offence committed prior to the commencement of the corporate insolvency resolution process shall, from the date of approval of resolution plan by the Adjudicating Authority, provided:
Primarily, he resolution plan must result in the change in the management to a person who was not a promoter or in the management or control of the corporate debtor and had not abetted or conspired for the commission of the offence.
Secondly, corporate debtor agrees to provide assistance and co-operation to any authority investigating an offence committed as required by law.
The section provides for discharge of prosecution instituted against corporate debtor during the corporate insolvency resolution process from the date of approval of the resolution plan. The section implies an overriding effect on the other legislations that may potentially institute and commence any criminal proceedings or were enacted for the sole purpose of acquisition of property.
OVERRIDING EFFECT:
Sec 32 provides absolute immunity to a corporate debtor; however, it is equally important to determine the ambit of overriding effect the Amendment would confer upon other legislations. In the case of Standard Chartered Bank vs Directorate of Enforcement[2] it had been held that the term offences to be inclusive of all offences and not merely criminal offences. In the case of conflict between SEBI which seeks to ensure protection of rights of investors the Amendment to IBC which results in Section 32A having an overriding effect, the amendment would affect the pith and substance of insolvency proceedings, therefore, it becomes important to establish procedure that could harmonize between revival and insolvency proceedings.
As for determining the overriding effect it has been held in the case of Deputy Director vs Asset Reconstruction Company[3]. Under the Prevention of Money-Laundering Act, 2002 (“PML Act”), not only the tainted property, but also any other asset can be attached. The judgment relied upon by the Tribunal in Punjab National Bank Vs. Deputy Director, Director of Enforcement[4]. It was held that Section 71 of the PML Act has got overriding effect. The amendment made by way of insertion through Section 32-A of IBC will not help the case of the respondents. Thus, the legislature is yet to devise a uniform principle for its implementation.
APPLICABILITY:
Section 32 was added through an ordinance while the case of Jsw Steel Ltd vs Mahender Kumar Khandelwal & Anr[5] on 17 February, 2020 it was held that theUnion of India had unequivocally stated that after the completion of the ‘Corporate Insolvency Resolution Process’, there cannot be any threat of criminal proceedings against the ‘Corporate Debtor’. Therefore, it is ex facie evident that the Ordinance being clarificatory in nature, must be made applicable retrospectively. What this would mean is that even with respect to property where resolution plan had been approved, yet insolvency proceedings was to be initiated, the same would be debarred and the Corporate Debtor can commence the CRP.
To pass the test of Arbitrariness for any procedure established by law as defined in Maneka Gandhi Vs UOI[6] it has to be ‘right, just and fair” and not ‘arbitrary, fanciful or oppressive’ moreover it has to pass the dual test of “equal protection of laws” and “reasonable classification”[7].
The Second issue is if the immunity granted is in violation of Article 14. The Section provides that immunity shall be provided to a corporate debtor however, a “designated partner” or an “officer who is in default”, or were in any manner in charge of, or responsible to the corporate debtor or in any manner directly or indirectly involved in the commission of such offence, have not been given the benefit of immunity under Section 32 A and are liable to be prosecuted and punished for such an offence committed by the corporate debtor.
The provision basically provides immunity to the perpetrator of the offence yet the individual who might be acting on the mere directions or under the instructions of such debtor will be liable for any act he might have committed. The court in such cases where the statute itself makes the classification is conferred with the powers to determine if it stands through the state of reasonable classification. The persons in default in such circumstances if indicted shall then depend on laws which provide for exemption where offence was committed without knowledge or connivance of such person.
The amendment is indeed a landmark step in the field of Insolvency proceedings and shall attract a wide range of disputes it seems, however it will be interesting to see the interpretation of the judiciary and how it tries to draw consonance between the existing statutes and the amendment.
REFERNCES
[1] ‘Swiss Ribbon’ Vs. ‘Union of India’; (2019)4 SCC
[2] Standard Chartered Bank vs Directorate Of Enforcement on 24 February, 2006, https://indiankanoon.org/doc/1915525/
[3] https://indiankanoon.org/doc/30727666/
[4] 2019 SCC Online ATPMLA
[5] Jsw Steel Ltd vs Mahender Kumar Khandelwal & Anr, 17 February, 2020, https://indiankanoon.org/doc/24992577/
[6] 1978 SC
[7] Ramkrishna Dalmia V Justice tendolkar, 1958 AIR 538
“Article by Ms Damini Srestha under internship of Adv Shankarlal Raheja
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