ED seizure may cease to be IBC's Sword of Damocles

Asset seizures tripping up bankruptcy resolution may become a thing of the past, with India's financial crime-buster preparing a much-needed fix.

- Gireesh Chandra Prasad

Currently, lenders face a big challenge when the Enforcement Directorate (ED) seizes assets linked to financial crimes, which comes in the way of the bankruptcy rescue process.

To get the resolution process moving, lenders typically move the National Company Law Tribunal (NCLT) to release these assets, where they face off against ED's lawyers, triggering a long-drawn process that winds through courts.

A new protocol prepared by the ED will make it easier for lenders to release assets and complete bankruptcy rescue, two people aware of the matter said.

Under this, the successful bidder, where a resolution plan has already been approved, will approach a special Prevention of Money Laundering Act (PMLA) court instead of NCLT to get the assets released. Where no fraud is detected, ED will not oppose the release; else, the agency will continue with PMLA proceedings, the persons said on the condition of anonymity.

In future cases, the assets confiscated by ED will not form part of the prospectus issued by the insolvency resolution professional for inviting fresh investments. If they wish to include those assets too, they have to approach the special PMLA court to get those released.