IBC: Lok Sabha Passes Bill Protecting Bidders From Past Liabilities, Restricting Homebuyers’ Power

The Lok Sabha passed a bill amending the bankruptcy law to mandate a minimum threshold for homebuyers to initiate insolvency and provide immunity to a corporate debtor from past liabilities once it's acquired.

The government had promulgated an ordinance to amend the Insolvency and Bankruptcy Code in December. In January, the Supreme Court ordered status quo on the provisions that restricted powers of homebuyers to initiate insolvency proceedings against defaulting companies. While the government cited potential abuse of the law for the change, homebuyers objected to it.

The other change in the Insolvency and Bankruptcy Code Second Amendment Bill, 2019 was necessitated by JSW Steel Ltd.'s bid for Bhushan Power & Steel Ltd. While investigating agencies sought to attach assets for offences allegedly committed under Bhushan Power's erstwhile promoters, JSW Steel sought immunity. The National Company Law Tribunal has already ruled in favour of the steelmaker.

Here are the key highlights of the proposed amendments in the bill:

• It Introduces a threshold of 100 homebuyers under the same real estate project for initiation of insolvency process against a developer.
• A corporate debtor will get immunity from past offenses as well offenses committed during an insolvency process. The immunity will become effective from from approval of a resolution plan by the adjudicating authority.
• Any permit, clearance or licence granted by any statutory authority cannot be cancelled or suspended on the grounds of insolvency.
• The amendment states that insolvency commencement date will be the date from which an application for initiating insolvency is admitted by the National Company Law Tribunal.

The provisions granting immunity to a corporate debtor from past offenses is the most significant change in the bankruptcy code, Shardul Shroff, managing chairman at Shardul Amarchand Mangaldas & Co., said.

The bill will become a law after it's cleared by Rajya Sabha and gets the president's nod.