IBC-PMLA deadlock: Govt plans system for smooth resolution

IBC-PMLA deadlock: Govt plans system for smooth resolution

The recent attachment of Bhushan Power & Steel Ltd’s (BPSL’s) assets by the Enforcement Directorate (ED) has created fresh doubts among bankers for using the IBC.

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Even WITH the recent enforcement actions by investigative agencies creating fresh challenges for resolution under the Insolvency and Bankruptcy Code (IBC), the government does not expect it to derail the entire process. The Centre is working on a mechanism for smooth working of the IBC, a senior government official said.

The recent attachment of Bhushan Power & Steel Ltd’s (BPSL’s) assets by the Enforcement Directorate (ED) has created fresh doubts among bankers for using the IBC. Potential bidders under the insolvency process will be wary of buying out companies as many bad loan cases undergoing resolution under the IBC may have elements of fraud, thereby bringing them under the ambit of the Prevention of Money Laundering Act (PMLA). “The NCLAT (National Company Law Appellate Tribunal) has already asked the government to give its views on this matter (of attachment of assets for companies under IBC). We are having internal consultations on this matter and believe this issue can be sorted out amicably,” an official familiar with the matter told The Indian Express. He said the government will submit its views to the NCLAT on how this issue should be addressed.

While hearing the BPSL case, the NCLAT, last month, asked “the two wings of the same government, same ministry” to sit together and settle the issue. Finance Minister Nirmala Sitharaman later said that the Finance Ministry and the Ministry of Corporate Affairs were both working to see how to resolve this issue. The NCLAT had also put the Rs 19,700-crore payout by the JSW Steel to buy debt-ridden BPSL on hold until further orders. The ED, last month, said it has attached land, building, plant and machinery of BPSL, Odisha, worth Rs 4,025 crore, under the PMLA in a bank fraud case.

Any clarity will act as a fillip to the insolvency process

Potential bidders under the insolvency process will be wary of buying out companies as many bad loan cases undergoing resolution under the IBC may have elements of fraud, thereby bringing them under the ambit of the Prevention of Money Laundering Act (PMLA). This hinders the resolution process. Any clarity or simplification by the government will be a boost to the insolvency process in the country.

Apart from BPSL, other IBC cases in which the ED has recently attached properties include Kudos Chemie Ltd, wherein the agency has attached, under PMLA, plant and machinery at Kuranwala and Saidpura, Mohali worth Rs 234.11 crores in a bank fraud case. Another IBC resolution case is of SPS Steel Rolling Mills Ltd, wherein ED attached properties worth Rs 92 crores under PMLA in a bank fraud case in September. “This opens a new Pandora’s box as many bad loan cases will have fraud element and their assets can be attached under PMLA. This could bring the resolution process under IBC to a standstill,” a banker with a PSB said.

Sources in the Insolvency and Bankruptcy Board of India (IBBI) said the issue pertains to a handful of cases and will not affect the overall resolution process. “See, a total of around 3,000 cases are undergoing resolution under various benches of the National Company Law Tribunals (NCLT). But only a handful cases are being looked into by the investigative agencies. I don’t think in terms of number of companies undergoing resolution it will be more than 1-2 per cent of the total cases. Although a recent high value case has created worries about derailment of the IBC process, we don’t think that is the case,” sources in IBBI said.

However, a senior banker and a corporate lawyer working as a resolution professional said bidders are now worried that even after they win a company under the IBC, the ED can attach properties under the PMLA, even after the new management takes over. “This is a big issue that needs resolution at the earliest,” the lawyer said. The government may bring in amendments to the IBC to iron out these and other issues.

Source- Indian Express.

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