Recently in the matter of Mr. Anil Goel, Liquidator of Varrsana Ispat Limited v. Deputy Director, Director of Enforcement[1] the Kolkata Bench of National Company Law Tribunal Kolkata in an unparalleled decision held that the non-obstante provision of Section 32A of the Insolvency and Bankruptcy Code, 2016 is also applicable to liquidation proceedings.
Background
In the instant case, Corporate Insolvency Resolution Process (CIRP) was initiated against the Corporate Debtor w.e.f. 16.11.2017. And ultimately, for want of a resolution plan the corporate debtor was ordered to undergo Liquidation by the Authority. On the other hand, in respect of a prior offence committed by one of the group companies of the Corporate Debtor, the Enforcement Directorate issued Provisional Attachment Order on 10.07.2017 alleging the assets owned by the Corporate Debtor to be “proceeds of crime” as per section 2 (1) (u) of the Prevention of Money Laundering Act, 2002. Mr. Anil Goel, the then Resolution Professional, now liquidator for the Corporate Debtor had filed an application for de-attachment of assets of the Corporate Debtor which was challenged and dismissed in finality dismissed by the authorities and the Supreme Court. Now whilst the company is undergoing liquidation, he filed for an application before the tribunal seeking permission to sale the assets of the Corporate Debtor which were attached by the Enforcement Directorate in view of the amended provisions of Section 32A of the IBC.
Section 32A was inserted by way of Insolvency and Bankruptcy Code (Amendment) Act, 2020 (Amendment Act) by receiving the President’s Assent on 13 March 2020. Section 32A provides immunity to the corporate debtor and its assets from any prosecution, action, attachment, seizure, retention or confiscation for an act committed prior to the approval of a resolution plan if the resolution plan results in the change in the management or control of the corporate debtor.
The provision for immunity from an action against the property of Corporate Debtor is found in Sub-section (2) of Section 32A:
“(2) No action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority under section 31, which results in the change in control of the corporate debtor to a person, or sale of liquidation assets under the provisions of Chapter III of Part II of this Code to a person, who was not—
(i) A promoter or in the management or control of the corporate debtor or a related party of such a person; or
(ii) A person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court.
Explanation.—for the purposes of this sub-section, it is hereby clarified that,—
(i) an action against the property of the corporate debtor in relation to an offence shall include the attachment, seizure, retention or confiscation of such property under such law as may be applicable to the corporate debtor;
(ii) nothing in this sub-section shall be construed to bar an action against the property of any person, other than the corporate debtor or a person who has acquired such property through corporate insolvency resolution process or liquidation process under this Code and fulfills the requirements specified in this section, against whom such an action may be taken under such law as may be applicable.”
Discussion
It was the contention of the Respondent that Section 32A is not applicable to the liquidation proceedings and that only in a case where a resolution plan is passed this provision would apply. For this, he placed reliance upon a judgment of the Coordinating Bench of NCLT, Hyderabad in the case of Leo Meridian Infrastructure Project v. Andhra Bank[2] where it was found that Section 32A is applicable only upon resolution plan having been finally approved – once the resolution plan has been finally approved and then protection granted.
The tribunal held that reliance cannot be placed on the abovementioned case as the facts and circumstances are entirely different in both cases. In the instant case the Corporate Debtor is undergoing liquidation and the Liquidator seeks permission to sell the assets already under order of attachment by the respondent in view of the application of Section 32A of the IBC. What is prayed for in the case at hand is not for releasing the attachment but only for permission to sell the assets under attachment.
The Liquidator/ Applicant submitted that de-attachment is not at all necessary because Section 32A provides immunity against prosecution of the corporate debtor and prevents action against the property of such corporate debtor undergoing CIRP or Liquidation and according to him the effect of attachment of the properties of the Corporate Debtor is to be nullified upon applying Section 32A and de attachment if any is to be asked for by the buyer and not by the liquidator. The Tribunal accepted these submissions of the Liquidator.
In its interpretation, the Tribunal emphasized on the object behind the insertion of Section 32A published in the ordinance on 28 December 2019:
“WHEREAS a need was felt to give the highest priority in repayment to last mile funding to corporate debtors to prevent insolvency in case the company goes into corporate insolvency resolution process or liquidation, to provide immunity against prosecution of the corporate debtor, to prevent action against the property of such corporate debtor and the successful resolution applicant subject to fulfillment of certain conditions and to fill the critical gaps in the corporate insolvency framework, it has become necessary to amend certain provisions of the Insolvency and Bankruptcy Code, 2016;”
The Tribunal held that a conjoint reading of Section 32A (2) with the object behind the introduction infers that 32A is also applicable to liquidation proceedings. Under the object as well as under section it is specifically dealt with that the section is applicable to prevent insolvency in case the company goes into CIRP or liquidation. It stressed the wording CIRP or Liquidation in the object behind insertion of this section and the following words under subsection (2) of Section 32-A: “where such property is covered under a resolution plan approved by the Adjudicating Authority under section 31, which results in the change in control of the corporate debtor to a person, or sale of liquidation assets under the provisions of Chapter III of Part II of this Code to a person, who was not—“.
Based on this above discussion, the Tribunal observed that the Section 32A is also applicable to the assets of the Corporate Debtor undergoing liquidation i.e. prohibits any action to be taken by the respondent as against properties of the Corporate Debtor undergoing CIRP or undergoing liquidation and thus a liquidator is entitled to file an application like the one in hand.
Conclusion
The Tribunal held the ratio that Section 32A prohibits any action to be taken by the respondent as against properties of the Corporate Debtor undergoing CIRP or undergoing liquidation. But it would not have any application to the designated partner or an officer who is in default or was in any manner in-charge of or responsible to Corporate Debtor for conduct of its business or associated in any manner who was directly or indirectly involved in commission of such offence.
The Tribunal held that the liquidator can proceed with the sale of the assets even if it is under attachment by the respondent, to continue the time bound process of liquidation under the provisions of the Code and upon completion of the sale proceedings the buyer can take appropriate steps to release the attachment. The attachment and confiscation of properties of a Corporate Debtor undergoing CIRP or liquidation become void under Section 32A of the Code.
There have been ambiguities and vagueness revolving around the provision of Section 32A and the courts and authorities are still struggling to give it a clear interpretation. One can observe that the Kolkata Tribunal while formulating this ratio has kept regard of one of the main objectives of the IBC – maximization of value of assets of the Corporate Debtor.
Notes:-
[1] I.A.(IB) No. /KB/2020 In C.P. (IB) No. 543 /KB/2017
[2] I.A. No. 138 & 139/ 2020 and I.A. 323 of 2020; In C.P. (IB) No. 43/7/HDB of 2018
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