Impact Of Covid-19 Pandemic On The Model Timeline Of Insolvency Resolution And Liquidation Proceedings
Insolvency and Bankruptcy Code, 2016 has been enacted with an objective to
consolidate and amend the laws relating to reorganisation and insolvency
resolution of corporate persons in a time bound manner for maximisation of value
of assets of such corporate entities.
Considering the difficulties faced in completing the reorganisation and
insolvency resolution of corporate persons in a time bound manner due to lack of
any clarity on the time required to be devoted by the resolution professional on
any particular process forming part of entire reorganisation process of
corporate persons; the IBBI Vide Notification dated 03.07.2018 provided model
time-line for corporate insolvency resolution process by inserting Regulation
40A in Insolvency Resolution Regulation, 2016.
Similarly for providing time required to be devoted by the Liquidator on any
particular process forming part of the liquidation process of corporate persons,
the IBBI Vide Notification dated 25.07.2019 provided model time-line for
liquidation process by inserting Regulation 47 in Liquidation Process
That in view of spread of COVID-19, National Disaster Management Authority in
exercise of power under Section 6(2)(i) of the Disaster Management Act, 2005
imposed a nationwide lockdown for 21 days on 24th March 2020 so as to prevent
the spread of Covid-19 in the country. The lockdown was extended on 14th April
2020, 1st May 2020 and finally on 17th May 2020. From 01st June 2020 onwards the
lockdown has been imposed in containment zones only.
The imposition of lockdown brought the entire process of Corporate Insolvency
Resolution as well as liquidation to standstill. To meet the timeline as
provided under model time-line under Regulation 40A of Insolvency Resolution
Regulation, 2016 and 47 of Liquidation Process Regulation, 2016 became
impossible. Section 12 of the Code provides that Corporate Insolvency Resolution
Process shall be completed in 180 days.
The 2nd Proviso to Section 12 mandates that Corporate Insolvency Resolution
Process shall be completed with 330 days from the insolvency commencement date
which includes extended period as well time taken in legal proceedings.
The Code doesn't provide for extension of Corporate Insolvency Resolution
Process on account of any pandemic beyond 330 days and at the same time there is
no provision in the Code for exclusion of period on the ground of pandemic in
calculating the days spent in Corporate Insolvency Resolution Process. To fill
up this lacuna, the IBBI and NCLT has proactively taken steps to face the
extraordinary created by Covid-19. We are hereinafter analysing such steps.
Relaxation In Computation Of The Timeline For Completion Of Insolvency Resolution Process
The IBBI on 29.03.2020 notified the Insolvency and Bankruptcy Board of India
(Insolvency Resolution Process for Corporate Persons) (Third Amendment)
Regulations, 2020 which provides for exclusion of period of lockdown imposed by
the Central Government in the wake of COVID19 outbreak from the time-line for
any activity in relation to a corporate insolvency resolution process provided
in Regulation 40 A of Insolvency Resolution Regulation, 2016. The notification
clearly stipulates that the amendment shall come into force on 29th March 2020
Regulation 40 C reads as under:
40C. Special provision relating to time-line.
Notwithstanding the time-lines contained in these regulations, but subject to
the provisions in the Code, the period of lockdown imposed by the Central
Government in the wake of COVID- 19 outbreak shall not be counted for the
purposes of the time-line for any activity that could not be completed due to
such lockdown, in relation to a corporate insolvency resolution process.
In the meantime, after taking cognizance of the unprecedented situation arising
out of spread of COVID-19 virus and hardships being faced by various
stakeholders, Hon'ble NCLAT on 30.03.2020, in Suo Moto Company Appeal (AT)
(Insolvency) No. 01 of 2020 passed following Order:
That the period of lockdown ordered by the Central Government and the State
Governments including the period as may be extended either in whole or part of
the country, where the registered office of the Corporate Debtor may be located,
shall be excluded for the purpose of counting of the period for 'Resolution
Process under Section 12 of the Insolvency and Bankruptcy Code, 2016, in all
cases where Corporate Insolvency Resolution Process has been initiated
and pending before any Bench of the National Company Law Tribunal or in Appeal
before this Appellate Tribunal.
It is apparent that notification dated 29.03.2020 issued by IBBI was not brought
into the notice of Hon'ble NCLT resulting into benefit of exclusion of period of
lockdown in calculation of model time-line under the Insolvency Resolution
Regulation, 2016 was given to only those corporate debtors whose offices are
situated within the area where lockdown is in force vide order dated 30.03.2020.
However, initially such minor contradiction in IBBI Notification and NCLT order
dated 30.03.2020 doesn't had any impact as the entire nation was under lockdown
but after 31.05.2020 when the classification of Containment zones and Green
zones came into force and lockdown restrictions were relaxed outside containment
zones, the confusion started in extending such benefit to those corporate
debtors whose offices are situated outside the containment zones.
Disaster Management Act, 2005, the areas outside containment zones are not under
lockdown and as per IBBI Notification dated 29.03.2020 as well as NCLT order
dated 30.03.2020, such Corporate Debtors can't claim the exclusion of period
after 31.05.2020 from the model timeline provided under Regulation 40A of
Insolvency Resolution Regulation, 2016.
The 2nd Contradiction between the IBBI Notification dated 29.03.2020
and Hon'ble NCLT order dated 30.03.2020 subsist w.r.t. calculation of total days
which can be qualified for exclusion. As per IBBI Notification, the lockdown
period can be calculated from 29.03.2020 to 31.05.2020 only whereas as per NCLT
order dated 30.03.2020, the entire lockdown period i.e. from 24.03.2020 to
31.05.2020 is liable to be excluded while calculating the number of days taken
in completion of any activity in relation to a Corporate Insolvency Resolution
Relaxation In Computation Of The Timeline For Completion Of Liquidation Process
Surprisingly, both IBBI as well as NCLT, initially failed to consider the impact
of lockdown in completion of liquidation process in view of specific model
timeline provided for such purpose under Regulation 47 of the Liquidation
Process Regulation, 2016.
Somehow, on 17th April 2020, the IBBI has realised the difficulties faced by
Liquidators in completing the task in prescribed model timeline, thus, vide
notification dated 17th April 2020 inserted Regulation 47A which provides as
47A. Exclusion of period of lockdown
Subject to the provisions of the Code, the period of lockdown imposed by the
Central Government in the wake of COVID-19 outbreak shall not be counted for the
purposes of computation of the time-line for any task that could not be
completed due to such lockdown, in relation to any liquidation process.
The said notification created confusion as to the implementation date
as notification provided that it shall come into force on 17th April 2020. IBBI
published the notification dated 20.04.2020 inserting Regulation 47A with an
explanatory memorandum which is as under:
The Governing Board of the Insolvency and Bankruptcy Board of India decided on
17th April, 2020 to amend the Insolvency and Bankruptcy Board of India
(Liquidation Process) Regulations, 2016.
The notification amending the
regulations could not be published in the Gazette of India, due to the
nationwide lockdown declared by the Central Government w.e.f. 25th March, 2020,
in the wake of the outbreak of Covid-19. The amendment regulations were,
therefore, published on the website of the Board for it to be effective from the
17th April, 2020, with a note that the same shall be published in the Gazette of
India as soon as the Government Press accepts the notification for publication.
The intention of the Governing Board was to bring into force the amended
regulations with effect from the 17th April, 2020. It is certified that, since
the amended regulations provide clarity to the stakeholders in regard to the
model time-line in the completion of various tasks in the liquidation process,
no person is being adversely affected by giving retrospective effect
The IBBI while giving such explanation, overlooked that period of lockdown from
24th March 2020 till 16th April 2020 will not get excluded in calculating the
time in completing any task in the liquidation process and denial of benefit for
such period is without any reason and such denial of relaxation appeared only
because of the ignorance on the part of IBBI. Regulation 47A of the Liquidation
Process Regulation, 2016 could have been published on the same day along with
regulation 40 C of Insolvency Resolution Regulation, 2016.
The aforesaid order and notifications are providing for the exclusion of period
of lockdown only while calculating the timeline in completion of any task in
relation to Corporate Insolvency Resolution Process or Liquidation Process.
Whether the period after 31.05.2020 outside the containment zone is covered
under aforesaid order and notifications became an issue of debate among the
professionals in view of the contradictions and ambiguity in the notifications.
The aforesaid issue has been considered by NCLT, Chandigarh Bench in CP (IB)
No.30/Chd/Pb/2017 titled as FM Hammerle Textiles Limited (Corporate Debtor).
In its order dated 11.05.2020 passed on an application moved by Successful
Resolution Applicant, who approached the NCLT seeking exclusion of complete
lockdown period while calculating the due date of payments.
The NCLT, Chandigarh Bench after taking note of Orders dated 23.03.2020 passed
by Hon'ble Supreme Court in Suo Motu Writ Petition (Civil) No(s).3/2020 in Re:
cognizance for extension of Limitation, Order dated 30.03.2020 passed by NCLT
Principal Bench and notifications issued by IBBI defined the entire lockdown
period as under:
…the entire lockdown period i.e. from the date of imposition of lockdown by the
Government of India till the reopening of National Company Law Tribunal,
Chandigarh Bench, on regular basis, after removal of the lockdown, be excluded….
In view of the aforesaid, lockdown period as defined by NCLT, Chandigarh bench
covers the period of entire lockdown i.e. from the date of imposition of
1st Lockdown till the NCLT bench reopens on regular basis. Thus, the period from
1st day of imposition of lockdown till concerned NCLT bench resumes its normal
functioning, will be excluded in calculating the time in completing any task in
the CIRP and liquidation process. The period may differ for various benches as
different benches may resume their normal functioning on different dates.
The start of economic activities outside containment zone will have no impact on
such proceedings as now the end of lockdown period has a correlation with the
reopening of respective NCLT benches for their normal functioning.
Law Article in India
You May Like
Legal Question & Answers
Please Drop Your Comments