Insolvency and Bankruptcy Code, 2016 is bankruptcy law in India which 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 everyone's 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:
- The threshold limit for filing the petition increased to 1 crore from 1 lakh
on 24th march, 2020.
- IBBI (insolvency resolution process for corporate person)in its 3rd amendment
regulations introduced 40c special provision relating to time line which
provides exemption of lockdown which was in relation to timelines mentionsunder CIRP on
29th march, 2020.
- IBBI (liquation process) (second amendment) regulations 2020, introduced
regulation 47 a (exclusion of period of lockdown) providing for exemption of
lockdown timelines mentioned under liquidation process. 17th April,2020.
- 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 17thmay, 2020.
- 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
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
- 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.
- No Bar in Case of Default Arising before 25.03.2020.
- No talk about MSMEs.
- 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
restrospective 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 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.
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
- The default arose before 25.03.2020
- The amount of default is more than Rs 1 Crore.
The amendment is a bit confusing and it raises uncertainty and are 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
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 going to take in future.