Recent development under IBC

Introduction

Insolvency and Bankruptcy Code, 2016 is bankruptcy law in India that seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy. It is considered biggest insolvency reform. The main objective of the code is to protect the interest of creditors including stakeholders in a company, to revive the company in a time bound manner, to maximize value of assets of corporate persons, to get necessary relief to the creditors who have been waiting for payments since long. 

Recently, India is facing one of the biggest yet scary medical emergency. In this epic pandemic COVID-19 India is fighting through many other problems. Our economy is highly getting affected. An ordinance was passed by Finance Minister on 24.03.2020 regarding the threshold limit to file application under IBC which was made 1 Crore from 1 lakh. Later, it was also held that for a year IBC is to be suspended. This lead to a biggest confusion in everyones mind. On June 5th, 2020Insolvency and Bankruptcy Code (Amendment) Ordinance (IBC),2020 has been one of the most awaited in the past two months. It may prove to be game changer. Article 123 of the Constitution of India grants the President of India certain law-making powers to promulgate ordinances when either of the two Houses of Parliament is not in session. The President provides for  insertion of sec 10 (A) and 66 (3).

The basic principle of the Ordinance is to suspend fresh bankruptcy proceedings against persons impacted because of COVID-19 for at least six months, up to a maximum of one year.

Various amendments before the recent amendment took place during the pandemic.

Chronology of the amendments made during COVID-19

1. The threshold limit for filing the petition increased to 1 crore from 1 lakh on 24th March, 2020.

2.  IBBI (insolvency resolution process for corporate person)in its 3rd amendment regulations introduced 40c special provision relating to timeline which provides an exemption of lockdown which was in relation to timelines mentions under CIRP on 29th march, 2020.

3.  IBBI (liquation process) (second amendment) regulations 2020, introduced regulation 47 a (exclusion of period of lockdown) providing for the exemption of lockdown timelines mentioned under liquidation process. 17th April,2020.

4.  As a part of ease of doing business initative taken by Finance Ministry as a piece of improvement bundle in wake of flare up of pandemic announced an embargo on fresh proceedings under the code for next 1 year on 17th May, 2020.

5.  On June 5th, 2020 an ordinance was passed by the Government regarding recent developments under the IBC. The corporate insolvency resolution process was being suspended for 6 months. Major changes were made under section 10A and 66 (3) have been inserted by insolvency and bankruptcy (amendment) ordinance, 2020 dates 05.06.2020. No fresh default cases from 25.03.2020. 

Recent developments made through The IBC Amendment Ordinance, 2020.

The ordinance has inserted sec 10 A to the act, it further suspends the initiation of the corporate insolvency resolution process for any default arising after 25.03.2020. The suspension is for a period of 6 months however, it can extent upto 1 year. Section 10 a states that no application for CIRP shall ever be filed for the defaults which shall occur in this time period. 2.  The ordinance inserts sub section 3 to section 66 of the code. The section further states that Resolution Professional is no longer entitled to file an application under sec 66 (2) to initiate CIRP for default occurring in prescribed time period. 3.  No Bar in Case of Default Arising before 25.03.2020. 4.  No talk about MSMEs. 5.  Recent Ordinance dated 05.06.2020 seems to provide some relief to the Corporate Debtors whose business are directly affected due to the COVID-19.

Debates are going on as to whether the Notification dated 24.03.2020 regarding the raising of the minimum threshold of default from Rs. 1 lakh to Rs. 1 crore is prospective or retrospective in nature. 

Vide an order dated 20.05.2020 by NCLT Kolkata (M/s. Foseco India Limited v M/s. Om Boseco Rail Products Limited)NCLT held that it is well-settled law that a statue is presumed to be prospective in nature unless it is held to be retrospective either expressly or by necessary implications.  

Vide an order dated 02.06.2020 by NCLT Chennai (M/s. Arrowline Organic Products (P) Ltd v. M/.s Rockwell Industries Limited) NCLT held that the notification issued by the central government through the ministry of corporate affairs dated 24.03.2020 bearing S.O 1205 (E) , in view of the detailed discussions in relation to the issue of its applicability, can be considered only as prospective.

Highlights.

Suspension of Section 7, 9, 10 of IBC, 2016 in case of defaults which arose on or after 25.03.2020.   Time period in which suspension of initiation of CIRP will be effective is yet to be notified , but for now it is for a minimum of 6 months and could be extended up to a maximum of 1 year. Applications to initiate CIRP for corporate debtors is allowed in case the following  conditions are satisfied:

The default arose before 25.03.2020 2.  The amount of default is more than Rs 1 Crore.

Conclusion

The amendment is a bit confusing and it raises uncertainty and is ambiguous. The amendment is fudging and needs bit more clarity. The drafting language has created yet another confusion. The expression used “No application shall ever be filled” gives rise to serious questions. It may also be said that while the amendments seeks to protect the persons/entities who are genuinely impacted because of COVID-19 from being dragged to bankruptcy. we have to wait for clarification from the Government in respect of the ordinance and also the stand which NCLTs will be going to take in future.