The Covid-19 had undoubtedly impacted each and every one of us in multiple manner. It had affected the might of many nations and will of their governments, uprooted many business units and their promoters, shattered the spirit of entrepreneurs, destroyed the confidence of individuals, affected the mental structure of the social workers and professionals and there is ,for sure, no leaf left unturned in this unexpected havoc and we can now find chaos and confusion everywhere! Insolvency Code, of course, is not an exception to this.
Insolvency and Bankruptcy Code(“IBC”), one of the path breaking legislations introduced by Narendra Modi Government, was primarily intended to strengthen the banks which were suffering from huge pile of Non-Performing Assets. The IBC, introduced in the year 2016 had made a monumental change in the credit ecosystem of India and had played a very vital role in pushing the rank of India in ease of doing business by 79 places from 142nd in 2014 to 63th in 2019. The IBC enables a creditor, operational as well as financial, to approach the National Company Law Tribunal (“NCLT”), if the Corporate Debtor is making default in payment of debts above Rupees One Lakh. The Corporate Debtor can be either a company or a limited liability partnership firm. The NCLT shall after providing an opportunity of being heard to the Corporate Debtor, initiate the Corporate Insolvency Resolution Process(“CIRP”) by appointing a Resolution Professional. The Resolution Professional shall take over the control and custody of the assets of the Corporate Debtor and invite the creditors to submit their claims within specified time limits. The Resolution Professional shall, with the help of Committee of Creditors(“CoC”) shall manage the affairs of the corporate debtor and operate it as a going concern and thereby protect the erosion of the value of its assets as well as its business. The CIRP is for a period of 180 days within which the Resolution Professional shall identify a suitable buyer , through systematic process, for the Corporate Debtor and handover the baton to the successful bidder, with the approval of CoC and NCLT. The successful buyer shall meet the liabilities and obligations of the corporate debtor towards various categories of creditors. If, in case the Resolution Professional fails to identify a suitable buyer the assets of the Corporate debtor shall be liquidated to settled the dues to the creditors.
Being a new piece of legislation, the jurisprudence was on developing stage and there were huge deliberations, discussion and decisions which had resulted in refining of the law to make it very suitable to the Indian credit ecosystem. There were numerous amendments to the Code based on the feedback and directions from various judicial forums. The limit to invoke the CIRP was kept at a low level of Rs. 1 lakh with an option for Central Government to enhance it to Rs. 1 Crore by issuance of a notification. Due to the lower entry barrier, the number of cases under the IBC had spiralled up and eventually clogged the functioning of National Company Law Tribunals. However the Central Government had notified more benches for NCLTs and thereby enabled the smooth disposal of the matters.
But the Covid19 had popped up from the thin air only to disturb the well-oiled systems of new insolvency law regime and it became a priority of the Government to dilute the provisions and applicability of the IBC code for some time. In order to curb the ill effect on the economy due to the untimely advent of Covid-19, the Central Government had introduced as slew of economic reigniting measures, in the form of stimulus packages, which includes introduction of Regelation 40C, enhancement of default limit for invoking the Corporate Insolvency Resolution Process (CIRP), from Rs 1 Lakh to Rs. 1 Crore etc. As per the said relaxations, the period of lockdown imposed by the Central Government in the wake of Covid-19 outbreak shall not be counted for the purposes of calculating the time-line for any activity that could not be completed due to such lockdown, in relation to a corporate insolvency resolution process. This will surely give a breather to the companies and LLP’s who are gasping for survival in this turbulent times.
On June 5, 2020, Ministry of Law and justice had published The Insolvency And Bankruptcy Code (Amendment) Ordinance, 2020, and inserted Section 10A to the Code to suspend the applicability of Section 7(Financial Creditor), Section 9(Operational Creditor) and Section 10(Corporate Debtor) for a limited period of six months effective from 25th March, 2020(Suspension period). As per the said ordinance, no insolvency proceedings can be initiated against the defaulting companies or limited liability partnerships(LLP), for a period of 6 months, if such default had occurred on or after 25th March, 2020. As per the newly inserted section, the Government have the power to further extend the suspension period for a maximum period of One year, if the situation does not improve within six months. So, practically the corporates and LLPs are saved from defaults they are making during the suspension period but have to face the pinch of the Code for any defaults they had made prior to 25th March, 2020. However the defaults occurring during the suspension period shall have permanent immunity from the applicability of the provisions of the Code and no application can be moved against the defaults occurring during the suspension period, even after the Corona Virus return to its abode in hell.
Bijoy P Pulipra FCS, IP, RV