Court affirms that properties of corporate debtors cannot be subjected to attachment after resolution plan approval under IBC, ensuring a "clean slate" for corporate debtors.
In a significant ruling, the Bombay High Court has quashed the attachment of property belonging to M/s. Abhirama Steels Limited under the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 (MPID Act), asserting the supremacy of the Insolvency and Bankruptcy Code, 2016 (IBC). The decision comes in the case of Dwarka Iron Industries Pvt. Ltd. versus Competent Authority under the MPID Act, where the Court deliberated on the interplay between the two statutes.
The Bench, comprising Justices Mr. Manish Pitale and Shreeram V. Shirsat, examined whether the attachment of the corporate debtor's property could continue following the approval of a resolution plan under Section 31 of the IBC. They concluded that Section 32A of the IBC provides immunity to corporate debtors from prosecution and any action against their properties for offences committed prior to the commencement of the Corporate Insolvency Resolution Process (CIRP), as long as the resolution plan results in a change of management or control.
The Court rejected the State's argument that the attachment vested the property with the competent authority under the MPID Act. Instead, it clarified that such vesting is inchoate and only becomes absolute when the designated court passes an order under Section 7 of the MPID Act, which had not occurred in this case.
Citing judgments from the Supreme Court, including Manish Kumar vs. Union of India and Ghanashyam Mishra and Sons Private Limited vs. Edelweiss Asset Reconstruction Company Limited, the Court reiterated that once a resolution plan is approved, the corporate debtor is granted a "clean slate," and property attachments under other laws cease to exist.
This ruling emphasizes the legislative intent behind the IBC to provide a fresh start to corporate debtors and aligns with the broader judicial understanding that insolvency proceedings take precedence over other statutory claims, including those under the MPID Act.
The Bombay High Court's judgment underscores the importance of Section 32A of the IBC, providing clarity on the hierarchy of statutes when dealing with corporate debtor properties post-resolution plan approval. The court's decision is expected to have far-reaching implications for similar cases, reaffirming the IBC's role as the primary legislation for insolvency and restructuring matters in India.
Bottom line:-
Interplay between the Insolvency and Bankruptcy Code, 2016 (IBC) and the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 (MPID Act) - Once a resolution plan is approved under Section 31 of the IBC, any attachment of corporate debtor's property under the MPID Act ceases to exist, provided the conditions of Section 32A are met.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Section 32A, Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 Sections 4 and 7
