Immunity from Asset Attachment Post-Resolution Plan Approval: Insights from Jaldhi Overseas Pte. Ltd. v. Bhushan Power Steel Ltd. & Ors.

The case of Jaldhi Overseas Pte. Ltd. v. Bhushan Power Steel Ltd. & Ors. adjudicated by the National Company Law Appellate Tribunal (NCLAT) on February 17, 2020, marks a significant juncture in the evolution of corporate insolvency resolution in India. This landmark judgment delves into the interplay between the Insolvency and Bankruptcy Code, 2016 (IBC) and the Prevention of Money Laundering Act, 2002 (PMLA), particularly focusing on the newly introduced Section 32A of the IBC.

In the corporate insolvency resolution process (CIRP) of Bhushan Power & Steel Limited (the Corporate Debtor), JSW Steel Limited submitted a resolution plan, which was approved by the National Company Law Tribunal (NCLT) with specific conditions. Subsequently, the Directorate of Enforcement (ED) attached assets of the Corporate Debtor under the PMLA for alleged money laundering activities by former promoters. JSW Steel Limited appealed to set aside these conditions and challenged the ED's jurisdiction to attach the assets post-plan approval.

The central issue was whether, following the approval of a resolution plan under Section 31 of the IBC, the ED could still attach assets of the Corporate Debtor based on past allegations of money laundering. The NCLAT, after considering conflicting stances within government departments and the introduction of Section 32A via an Ordinance, ultimately held that the attachment was illegal, thereby granting immunity to JSW Steel Limited and upholding the resolution plan.

Precedents Cited

The judgment references pivotal cases that have shaped the interpretation of the IBC, notably:

• Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors. (2019 SCC OnLine SC 1478) – This Supreme Court verdict emphasized that once a resolution plan is approved, all related claims should be settled through the plan, preventing post-approval claims that could jeopardize the resolution process.
• Standard Chartered Bank v. Satish Kumar Gupta, R.P. of Essar Steel Ltd. & Ors. – This case underscored fair and equitable treatment of all creditors during the distribution of profits generated during the CIRP.
• JSW Steel Limited v. Ashok Kumar Gulla & Ors. (Company Appeal (AT) (Insolvency) No. 467 of 2019) – This involved the clarification of the role and classification of JSW Steel Limited in relation to the Corporate Debtor.

Legal Reasoning

The Tribunal's reasoning hinged on several legal principles:

• Binding Nature of the Resolution Plan: Under Section 31 of the IBC, an approved resolution plan binds all stakeholders, including government agencies. This establishes a legal shield against post-approval interventions affecting the Corporate Debtor's assets.
• Introduction and Applicability of Section 32A: Section 32A was inserted to grant immunity against prosecution and asset attachment for resolution applicants, provided they are not related parties involved in wrongdoing. The Tribunal interpreted this section to apply retrospectively, ensuring that once a resolution plan is approved, the assets become immune from external attachments unless clear evidence of involvement in illicit activities exists.
• Definition and Interpretation of 'Related Party': The Tribunal meticulously analyzed Section 5(24) of the IBC and relevant sections of the Companies Act, concluding that JSW Steel Limited did not fall under the 'related party' category, thereby making them eligible for immunity under Section 32A.
• Separation of CIRP and Criminal Investigations: Emphasizing that CIRP is a statutory, transparent process, the Tribunal maintained that criminal investigations (PMLA) should not interfere once a resolution plan is sanctioned, preserving the integrity and objectives of the IBC.

Impact

This judgment has profound implications for the corporate insolvency landscape in India:

• Enhanced Certainty for Resolution Applicants: By affirming that once a resolution plan is approved, assets are generally immune from attachment, it instills greater confidence among prospective resolution applicants and investors.
• Clarification on Government Agencies' Roles: The judgment delineates the boundaries of enforcement agencies post-resolution plan approval, ensuring they cannot arbitrarily interfere, thereby streamlining the resolution process.
• Reinforcement of IBC's Primacy: The Tribunal reinforced that provisions of the IBC hold overriding authority over other laws, minimizing conflicts and ensuring smoother insolvency resolutions.
• Interpretation of Related Parties: By providing a clear interpretation of what constitutes a related party, the judgment aids in determining eligibility and immunities for resolution applicants under the IBC.

Section 31 of the Insolvency and Bankruptcy Code (IBC)

This section deals with the approval of a resolution plan. Once approved by the Adjudicating Authority (NCLT), the plan becomes binding on the Corporate Debtor, its creditors, shareholders, and other stakeholders, effectively freezing the company's structure as per the plan.

Section 32A of the IBC

Introduced via an Ordinance, this section offers immunity to the resolution applicant and the Corporate Debtor from prosecution and asset attachment post the approval of the resolution plan. However, this immunity is contingent upon the resolution applicant not being a related party involved in illicit activities as defined under the PMLA.

Prevention of Money Laundering Act (PMLA)

A comprehensive law aimed at combating money laundering and related financial crimes in India. Under PMLA, authorities like the ED can attach properties suspected of being involved in money laundering.

'Related Party' as per IBC

A 'related party' includes any entity that has significant control or influence over the Corporate Debtor, such as holding companies, subsidiaries, or joint ventures. Being classified as a related party can affect eligibility and immunities under the IBC.

The NCLAT's judgment in Jaldhi Overseas Pte. Ltd. v. Bhushan Power Steel Ltd. & Ors. underscores the sanctity and primacy of the IBC in resolving corporate insolvencies in India. By asserting that once a resolution plan is approved, assets are generally shielded from external attachments, the Tribunal has fortified the framework's effectiveness. Additionally, the clear delineation of roles and immunities for resolution applicants paves the way for a more predictable and streamlined insolvency resolution process, crucial for economic stability and investor confidence.

Moving forward, stakeholders can draw assurance that the IBC's provisions, especially with the introduction of supportive sections like 32A, are robust against potential interferences, provided due diligence and legal frameworks are adhered to. This judgment not only resolves the immediate dispute but also sets a precedent that would influence future insolvency resolutions, reinforcing the IBC's role as the cornerstone of corporate bankruptcy proceedings in India.