The Union Cabinet on Tuesday approved a proposal to promulgate an ordinance for the amendment of the Insolvency and Bankruptcy Code (IBC).
The proposed amendment would provide protection to buyers from criminal proceedings against previous promoters of a bankrupt firm.
"Under the amendments, the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the adjudicating authority," an official statement said.
The statement further added that the liabilities would cease if the resolution plan results in the change in the management of the corporate debtor to a person who was not a promoter or in the management previously.
This would also be applicable if the person is not someone who the investigating authority finds to have conspired for the offence.
"Subject to relevant provisions the corporate debtor shall, as required, extend all assistance and co-operation to any authority investigating an offence committed prior to the commencement of the corporate insolvency resolution process," the statement said.
It noted that the amendment would remove certain ambiguities in the Insolvency and Bankruptcy Code, 2016, and ensure smooth implementation of the code.
The government had on December 12 tabled a Bill in the Lok Sabha to amend the code, which along with protection of new buyers under IBC also sought to set a minimum requirement of the number of home buyers for filing an insolvency plea against a developer.
The amendment would also pave the way for initiation of insolvency proceedings against a real estate entity only if a class of creditors approves it.
The changes would protect the 'going concern status' of a company facing insolvency proceedings while providing protection to last-mile funding in financially distressed sectors.
According to the Bill, home buyers willing to take the developer to an insolvency court will have to ensure that a minimum of 100 home buyers or 10 per cent of the total home buyers file for bankruptcy against the developer.