Insolvency and Bankruptcy Code suspension extended till 31st March

Background

• The nationwide lockdown induced by the Covid-19 pandemic which began on 25th March, 2020 made the entire country come to a complete standstill. The process of gradually opening up the economy in a phased manner began on 1st June, 2020.

• The government introduced various relief measures to give time to businesses to recover from financial strain stimulated by the pandemic and the lockdown and one such measure was suspension of sections 7,9, and 10 of the Insolvency and Bankruptcy Code.

What is IBC?

• The Insolvency and Bankruptcy Code, 2016 or IBC came into effect on 28th May 2016 with the objective of consolidating a single framework to govern insolvency, liquidation, voluntary liquidation and bankruptcy laws in India.

• The code applies to companies incorporated under the Companies Act, 2013 or under any previous company law, companies governed by any special act, LLPs, bodies incorporated under any law which maybe specified by the Central government, partnership firms and individuals.

• The parliament has recently passed The Insolvency and Bankruptcy Code (second amendment) Bill, 2020 which seeks to amend certain provisions of the Insolvency and Bankruptcy Code, 2016.

• Section 10A has been inserted under the aforesaid amendment which has suspended initiation of corporate insolvency resolution process for defaults arising on or after 25th March, 2020 for a period of 6 months and this period can be extended further but it should not exceed one year from the date of such extension.

Section 7, 9 and 10 of IBC

• Section 7 deals with initiation of Corporate Insolvency Resolution Process (CIRP) by financial creditor against a corporate debtor in case of a default by filing an application before the adjudicating authority.

• Section 9 deals with initiation of Corporate Insolvency Resolution Process (CIRP) by operational creditor in case he does not receive payment from the corporate debtor after a period of ten days has expired from the date of delivery of the notice or invoice demanding payment.

• Section 10 deals with initiation of Corporate Insolvency Resolution Process (CIRP) by corporate applicant in case of a default.

Extension of the suspension

• Initially, the suspension of the aforesaid sections was introduced fora period of 6 months beginning from 25th March,2020which was later extended by another 3 months ending on 25th December, 2020.

• Finance Minister Nirmala Sitharaman has now announced further suspension of the three sections of IBC till 25th March, 2021 stating that, “So, the entire year has had the IBC suspended, rightfully so because every industry has gone through major stress because of the pandemic and nobody could be drawn towards the insolvency process for problems that may have occurred during the pandemic.”

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