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This is an exhaustive article written by Shruti Kulshreshtha, from Symbiosis Law School, Hyderabad on the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020.


The Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the ‘Code’ or ‘IBC’) was enacted to consolidate the laws and provide a legal framework for corporate insolvency. Since then, the Code has been amended 5 times, the last amendment being the IBC (Amendment) Ordinance, 2020 which was promulgated on 5th June, 2020. This amendment has been enforced on account of the impact of COVID-19 pandemic on corporates. The Ordinance has introduced Section 10A and Section 66(3) to the Code with a view to protect the distressed corporates from a financial predicament which arose due to this unprecedented situation.

Reasons for the amendment

The Ordinance was promulgated by the President of India by the virtue of powers conferred by Article 123 of the Indian Constitution. It came into force at once. The Corporate insolvency resolution process and the liquidation process under the IBC is in place. The Finance Ministry had to introduce the present amendment to the Code on account of the following reasons:

  1. The COVID- 19 pandemic has resulted in the halt of the business activities. The financial market and the economy has ceased to carry out the daily business which has caused uncertainty and financial distress in the corporate world. This extraordinary situation is out of control of the majority of companies around the world. 
  2. The Central Government had imposed a nationwide lockdown on 25th March, 2020, thereby forcing the companies to shut down their business for a certain period of time. This has definitely caused a decline in their financial standing.
  3. The pandemic has also rendered difficulty in finding an adequate number of resolution applicants when a corporate defaults the discharge of a debt application. 
  4. Corporates are pushed into insolvency due to this unprecedented situation. In order to prevent this, there is a need to suspend Section 7, Section 9 and Section 10 of the Code for a specific period of time. 
  5. The pandemic has also called for the exclusion of defaults arising due to the extraordinary situation.
  6. Another impact of this pandemic is that the Parliament is not being able to conduct a session for the discussion of the present situation. Hence, the President had to take immediate action regarding the insolvency of companies.

Insertion of Section 10A

Section 10 of the Code provides locus standi to an applicant for initiating the corporate insolvency resolution process (“CIRP”) as a consequence of any default. The present ordinance has inserted Section 10A to the Code which suspends the applicability of Section 7, 9 and 10 of IBC, selectively. The provision states that for the corporate defaults arising on or after 25 March, 2020, an application for the initiation of CIRP shall not be filed by any corporate debtor for a period of 6 months and not exceeding 1 year from the mentioned date. The proviso of the Section provides that no application for the initiation of CIRP shall ever be filed for the defaults arising during this period. The provision also clarifies that a corporate default that occurred before 25 March, 2020 shall not fall under the purview of this Section. 

The new Section raises some ambiguities with regard to the application of this provision. The amendment does not clarify the date to be considered for the purpose of calculation of the period of 6 months or 1 year after 25 March, 2020. In such a case, the Adjudicating Authority will have to determine the date on a case to case basis. The onus of proving that the default occurred on or after 25th March will lie upon the applicant. To resolve this ambiguity, the admission of applications for the initiation of CIRP should have been prohibited, instead of the current mandate. 

According to the proviso, no application shall ever be filed against a corporate debtor whose default has arisen in the said period. However, what will happen to the companies whose default continues to exist even after the expiry of the prescribed period? Also, will the creditor be precluded from filing an application against a corporate debtor as the default falls under the protection of Section 10A? The amendment has given rise to these issues which remain unanswered.

Another approach to this amendment is that RBI has granted relief to borrowers who are facing financial stress of 180 days from their accounts being declared as NPA. What will happen after the end of 180 days to those accounts whose reasons for default is not the pandemic? The amendment will have no escape for such defaulters. 

The primary motive of this ordinance is to provide certain benefits to defaulters who are in financial stress due to the pandemic. However, there are other recovery options available to the creditors to approach resolution such as Section 19 of Recovery of Debts due to Bank and Financial Institution Act, Section 13 and Section 14 of the SARFAESI Act. Operational Creditors can look upon remedies under the Commercial Courts Act for recovery. SMEs can fall back to the recoveries under the Samadhan Scheme. Furthermore, the government also needs to clarify that whether the default amount accumulated during the 6-month period be included in the debt amount of default application, which will be filed at the end of 6 months or the prescribed period.  

For the purpose of triggering the IBC, the default from 25th March, 2020 for a period of 6 months will not be considered as a continuing wrong after the end of 6 months. This was held in the case of Vashdeo R Bhojwani vs Abhyudaya Co Operative Bank Ltd, Civil Appeal No. 11020 Of 2018, wherein the Court held that a debt due to a bank which is in default will not be considered as a continuing wrong. It was observed that in cases of default arising out of Debt Recovery Certificate, the obligation to pay and the breach of the same, stands crystallised on the date of default and as such, the cause of action cannot be deemed to be continuing during the period of non-payment.       

Amendment to Section 66

Section 3 of the Ordinance amends Section 66 of the Code. Section 66 deals with fraudulent trading or wrongful trading by a corporate debtor and requires the resolution professional to file an application during the CIRP of the corporate debtor, thereby making the director or partner liable for the contribution of assets to the corporate debtor. The Ordinance has inserted a new sub-section, i.e., Section 66(3) to the Code. Sub-Section 3 states that the resolution professional shall not file any application under Section 66(2), for those corporate debtors whose CIRP has been suspended for the prescribed period as per Section 10A. 

A prima facie implication of this amendment would mean that the directors or partners of a corporate debtor can escape the ramifications of the fraudulent trading done by the corporate debtor. In addition, this amendment gives the opportunity to those corporate debtors who intend to commit fraudulent transactions during the prescribed period, since they will be protected by Section 10A. Thus, the insertion of sub-section 3 downgrades the powers entrusted with the resolution professional from a custodian of the CIRP to a mere spectator witnessing frauds. This amendment allows the directors and partners to circumvent their liability and gives access to commit fraudulent transactions.  

The intention of the government was to provide an exception to Section 66(2) due to the situation of COVID- 19 and to make Section 66 in consonance with Section 10A of the Code. However, the amendment has barred the filing of applications relating to defaults for the exempted period itself. The very nature of Section 66 is not transactional rather is based upon the conduct of the whole business in general. So, it is not clear as to whether the amendment to Section 66 is an exemption to Section 66(2) for a specific transaction or whether it can be regarded as an exemption to the whole business in general.   

Applicability of the Ordinance

An essential aspect of this Ordinance is the applicability of Section 10A. The ambiguity is regarding the date which shall be considered from which the period of 6 months is to be counted as per Section 10A of the amendment. This interpretation has been left upon the adjudicating Authority to deal with, which becomes an additional burden upon the courts. The actions taken by the courts in pursuance of this ambiguous period can also become a point of conflict since it will vary from case to case. 

The amendment poses a lot of confusion before the corporates regarding the commencement of the 6 month period. It can be either 25th March, 2020 or on the date of the default. There are multiple benches of the Adjudicating Authority which gives scope to multiple interpretations of the same clause as the situation varies from one case to another. A uniform application to this amendment is far from possibility and it might have to be interpreted by the higher judiciary. 

The present ordinance also does not elucidate the amount that would fall under the meaning of default under Section 4 of the Code, as was increased from ₹ 1 lakhs to ₹ 1 crores by an earlier notification. What will be the course of action if part of the default occurred before 25 March, 2020 and the other part of it occurred on or after 25 March, 2020. Also, if the majority amount of default occurs before 25 March, 2020 and the minority or the residual amount of default occurs after 25 March, 2020, so will such a corporate debtor be entitled to fall under the ambit of Section 10A of the Ordinance or will the corporate debtor be entitled to file an application to initiate CIRP, as per normal procedure? For better understanding, let us consider this illustration. A default of ₹ 75 lakhs arose on 3 March, 2020 and another default of ₹ 25 lakhs arose on 1 April, 2020, then what will be the applicability of such a default?

Furthermore, if a corporate debtor commits a default in the exempted period, it shall be protected by the provisions of Section 10A of the Ordinance. However, if another default has been committed by the corporate debtor against the same creditor, then will the default amount that occurred in the exempted period added in the default amount occurring thereafter? 

It is pertinent to note that the Ordinance will be applicable on the companies which had given Corporate Guarantees before 25 March, 2020, but upon invocation after the said date, did not perform their obligations towards the Corporate Guarantees and thus, would be protected by Section 10A of the amendment. 

Hence, it is very unclear whether the amendment applies prospectively or retrospectively or perpetually.     



Instead of providing answers, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 has left us with more questions. The meanings of protection, compliance and defaults have become even more hazier than it was before this Ordinance. The government’s initiative of sensitising towards the impact of this pandemic is truly appreciable and a welcome step. But, a poor drafting of the Ordinance has left the corporates with its own exceptional consequences. The corporate debtors will have to find out some other technique of restructuring the debt for which an insolvency proceedings cannot be filed perpetually. The question will still remain to be considered that even after restructuring those debts whether they will continue to be treated as protected within the proviso to section 10A or beyond its purview. The repercussions of this Ordinance will also be that the precious time of the Adjudication Authority and the courts will be invested in figuring out the application, time period, default amount etc for each and every case. Hence, this is an additional burden on the courts and in the process of corporate insolvency resolution. 


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