IBC Tweak to Avert PMLA Clash Likely

Conflicting court interpretations on immunity prompt a review

- Gireesh Chandra Prasad

The Centre is looking to amend India's bankruptcy law to ensure its provisions are not undermined by the overarching money-laundering law, two people aware of the matter said. This comes after authorities seized assets of several bankrupt companies being sold to new buyers, when their previous promoters were suspected of financial crime.

While Section 32A of the Insolvency and Bankruptcy Code (IBC) protects assets of a bankrupt company from attachment once a new owner takes charge, the Enforcement Directorate (ED) has often entered the picture under the Prevention of Money Laundering Act (PMLA).

The section was added in 2019 to ring-fence the assets of a company being rescued under IBC, and encourage investor interest in distressed assets. However, close to a dozen court orders that interpreted the law differently have prompted the move for legislative amendments, the people cited above added.

The idea is to ensure that the two laws work cohesively.

"Officials of the ministry of corporate affairs, the revenue department and the regulators have already held discussions on the matter. The government is attempting to bring a bill in the current session of Parliament, but if the necessary approvals take longer, it may be introduced in the winter session," said one of the two people cited above, adding that the specifics of the legislative changes would be finalized soon.