India’s Supreme Court upheld laws that safeguard fresh owners of insolvent companies from charges filed against the previous administration in a ruling that could pave the path for massive bankruptcies’ timelier perseverance.
A bankrupt company and its assets cannot confront criminal proceedings once it is traded to new owners. The Supreme Court asserted on Tuesday while rejecting pleas contesting the laws. The former management can yet be litigated.
The verdict delivers some transparency and protection to probable investors gawking to buy into one of the world’s most immense amounts of awful loans.
India’s central bank prognosticates that soured assets will approximately double to 13.5% of cumulative advances in the year through September as the pandemic whacks industries.
There is an “imperative need to attract resolution applicants who would not shy away from offering reasonable and fair value” for the bankrupt company and its property, a three-judge panel led by Justice Rohinton F. Nariman said in its verdict.
Extinguishing criminal liability will help the new management “to make a clean break with the past and start on a clean slate,” it said.
The sale of bankrupt companies, including JSW Steel Ltd.’s takeover bid for Bhushan Power & Steel Ltd. — one of the 12 big debtors dragged into bankruptcy by the central bank in 2017 — have been clasped after India’s anti-money laundering agency confiscated assets and obstructed the deals while examining alleged violations by preceding owners.
The law awarding immunity was first enacted by a bankruptcy tribunal last year. The Supreme Court’s verdict Tuesday was a fraction of a case by homebuyers and some creditors who disputed the law.
“With multiple criminal prosecutions often plaguing debtor companies, the ring fencing done by the 2020 amendment would hopefully serve as impetus for resolution for the Reserve Bank of India’s dirty dozen and beyond,” said Sushmita Gandhi, a partner at law firm IndusLaw.
The court on Tuesday also ratified curbs prohibiting individual homebuyers from prompting bankruptcy against builders. The new law mandates at least 100 buyers or 10% in a project to commence a bankruptcy case.