Will the proposed amendments to Section 31 of Insolvency and Bankruptcy Code, 2016 finally lay rest to the IBC v. PMLA debate and boost investor confidence?
The 80-pager 2025 bill seeking to amend the Insolvency and Bankruptcy Code, 2016 ("IBC"), as introduced in the Lok Sabha on 12th August 2025 and referred to a special parliamentary committee, caters to a slew of issues that have grappled the insolvency and bankruptcy regime in India, since its last amendment in 2021.
With some amendments purportedly seeking to reverse or undo the implications of certain jurisprudence – case in point being the amendment to definition of "security interest" to undo the principles laid down by the Supreme Court in the September 2022 judgement of State Tax Officer (1) v. Rainbow Papers Limited as well as the May 2025 judgement of National Spot Exchange Limited v. Union of India – the bill additionally introduces the much discussed and deliberated group insolvency framework along with a creditor driven resolution process.
Clean-slate Doctrine
Amidst the above, one of the keys aspects which the bill proposes to undertake is introduction of two new sub-clauses in the Section 31 of the Code. Section 31, titled "Approval of resolution plan", comprises the principle of binding all concerned stakeholders of the corporate debtor (including employees, creditors, as well as governments and authorities) to the approved resolution plan; and thereby effectively extinguishing their claims against the corporate debtor as on the date of approval of the resolution plan.
Effectively, this principle forms the basis of the clean-slate doctrine which was also strengthened by insertion of Section 32A (by way of the 2020 amendment to IBC) which exempts and ring-fences the successful resolution applicant from facing prosecutions in respect of offences committed by erstwhile management of the corporate debtor.
To put it simply, the doctrine of clean-slate predominantly rests of three cornerstones:
- the successful resolution applicant cannot be burdened with fresh/new claims post approval of the Resolution Plan (as laid down by the Supreme Court in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta & Ors. dated 15.11.2019);
- The successful resolution applicant cannot be subjected to prosecutions of past offences in respect of the corporate debtor (as confirmed by the Supreme Court in Manish Kumar v. Union of India (19.01.2021) and in P. Mohanraj & Ors. v. M/s. Shah Brothers Ispat Pvt. Ltd. (01.03.2021)); and
- the relief under (b) can be claimed only if the successful resolution applicant is not related to the erstwhile management of the corporate debtor (as provided for under Section 32A of the IBC).
Incidentally all three judgements were passed by special benches comprising three-judges of the Supreme Court, and all three benches had one common judge, Hon'ble Retd. Justice Mr. R.F. Nariman.
In respect of (c) the Insolvency and Bankruptcy Board of India, had just earlier this month on 6th August sought comments on a proposal to seek enhanced disclosures from prospective resolution applicants to file statements of beneficial ownerships in order to negate their being a related party to the corporate debtor and further seeking an affidavit confirming that the said applicant is eligible to avail the benefit of the Section 32A of IBC.
Implications of proposed sub-clause 6 in Section 31 of IBC on PMLA
Recently enough in the backdrop of the to and from of the resolution plan pertaining to Bhushan Steel and Power Limited, a crucial aspect concerning the attachment orders issued by the Enforcement Directorate under Prevention of Money Laundering Act, 2002 (PMLA) caught attention. In the absence of reinstatement of the resolution plan the ED could proceed with the prosecution of the corporate debtor as well as re-attached its assets that were released only in December 2024. The Hon'ble Delhi High Court vide its judgement dated 30.01.2025 in Bhushan Power and Steel Limited v. Union of India had principally held that: "[...] there is no dispute over the legal position that once a resolution plan has been approved by the adjudicating authority under Section 31 of IBC and the conditions specified in Section 32A of the IBC are fulfilled, the Corporate Debtor shall not be prosecuted for an offence committed prior to the commencement of the CIRP." This judgement is only one of the recent ones amongst a slew of decisions from NCLTs, NCLATs, various High Courts and even the Supreme Court on the IBC v. PMLA debate.
With rather elaborate explanations, which capture the ethos of the above-quoted principle, the proposed sub-clause (b) to sub-section 6 of Section 31 reads that where the NCLT approves a resolution plan, "no proceedings shall be continued or instituted against the corporate debtor or its assets on the basis of such claims, including proceedings for assessment of the claims". The direct implication of this amendment will be on disabling the ED from continuing attachment of assets of the corporate debtor.
Hence, with protection against prosecution as already provided for under Section 32A, the latest amendment bill seeks to specifically provide from de-attachment of assets of the corporate debtor from the clutches of ED or any other such law-enforcement agency; thereby laying to rest the debate on whether the moratorium under Section 14 of the Code provides for preservation of the assets of corporate debtor from attachment under PMLA.
Boosting Investor Confidence?
While the above provisions will clearly provide a boost to investor confidence in bidding and competing for stressed assets under the IBC regime; the real pain point for any investor lies in the prolonged litigations that emanate from IBC proceedings, and especially post acquisition of the corporate debtor upon approval of the resolution plan.
Case in point being the Bhushan Power Steel Limited proceedings in which the Supreme Court reserved its order on 13th August 2025, while the resolution plan was approved way back in 2019.
Interestingly while the bill also provides for specific amendments that prescribe the NCLTs to record reasons for not deciding applications seeking initiation of resolution processes within 14 days, it has also been reported that the government is mulling with the idea of introducing specialised NCLT benches solely for IBC oriented matters. From the state of affairs where even company-heavy states such as Karnataka and Uttar Pradesh struggling with only one NCLT bench each in today's date, having dedicated benches for IBC, with well-defined timelines, is a needless to say need of the hour; and the only way to invite investor confidence of being able to wield a projected return on investment.
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