The Union Cabinet has approved an ordinance to further amend the Insolvency and Bankruptcy Code (IBC), to protect a winning bidder against liability of a corporate debtor for an offence committed prior to the commencement of the insolvency resolution process.

There would be no prosecution for any such offence from the date of resolution plan being approved by the adjudicating authority, an official statement said. This will shield the new owner and the corporate entity while instilling confidence in resolution efforts.

Union minister Prakash Javadekar on Tuesday said the Cabinet has cleared an ordinance to amend the Code.

“The amendment will remove certain ambiguities in the IBC, 2016 and ensure smooth implementation of the Code,” the statement said.

Experts say this will remove hurdles in the way of corporate resolution.

The move comes after investigation agencies filed cases against companies besides erstwhile promoters that were undergoing resolution process. The industry had represented to the government on the issue.

The amendments involve insertion of Section 32A in the Code, which will bar government agencies from attaching assets of an insolvent debtor undergoing bankruptcy resolution for prior offences. Assets of companies undergoing liquidation will also be protected from any action from government agencies. The amendments, however, allow for prosecution against promoters or management in case of criminal proceedings.

On December 12, the government had introduced a bill in the Lok Sabha to amend the Code. The bill seeks to remove bottlenecks and streamline the corporate insolvency resolution process, wherein successful bidders will be ring fenced from any risk of criminal proceedings for offences committed by previous promoters of companies concerned. The Code, which provides for resolution of stressed assets in a time-bound and market-linked manner, has already been amended thrice.