This article is written by Mayank Sahini, pursuing a Certificate Course in Insolvency and Bankruptcy Code from LawSikho.
On 24-03-2020 Indian government was compelled to initiate a lockdown all over the country stopping every work starting from a cleaners job to the work of a governmental official (except for Hospitals and Police). Even after numerous efforts from the government of India the cases kept rising, though the lockdown was a success it further led to more lockdowns and one couldn’t see an end to the rise in the case of Covid patients in India. The economy like any other country’s was dropping drastically therefore causing an impact on the economy of the country. The courts had stopped listing cases, no cases were being taken up by the courts in the beginning of the lockdown. It was in the later half of the year when the government realised that courts cannot be kept closed throughout the year and hence they found a way to conduct court hearings i.e. the court started listening to the cases online.
Yet, the lockdown has drastically affected the MSME’s (Micro, Small and Medium Enterprises). They, at last, confronted the impending danger of leaving business. Thinking about the idea of these endeavours, they generally dreaded Insolvency. Hence, to abridge their dread, the public authority accompanied a few stages to reinforce them and in a similar cycle The Indian Insolvency and Bankruptcy Code, 2016 went through certain turns of events.
Increase in the threshold limit for filing the case
The Finance Minister in a press conference on 24th March 2020 announced that the threshold limit of default provided under IBC for filing an application for CIRP, has been increased from Rs. One Lakhs to Rupees One Crore, which is further provided under Section 4 of IBC. Further, this amendment has a direct impact on Section 7, Section 8 and Section 9 of the Act. These sections majorly focus on filing and discuss the key factors for filing the CIRP application by Corporate Debtor, Operational Creditor and Financial Creditor, before the Adjudication Authority that is NCLT.
Now after this change it is clear that the threshold limit to contemplate default amount has now been increased to INR 1 Crore without any rider or exception. To support MSMEs all the applications from financial creditors and operational creditors shall be entertained only if the amount defaulted is equal or over 1 crore.
Changes in the timeline period of 330 days
To reject the Lockdown time frame from the timetable of 330 days an extraordinary arrangement, specifically, Regulation 40-C has a been embedded in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 to prohibit the lockdown time frame from the courses of events recommended under the IBC vide Notification dated 29.03.2020. A similar warning peruses as follows: The same notification reads as follows:
“40-C. 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 COVID19 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.”
Thus, the present timeline of 330 days prescribed in the proviso to Section 12(3) of the IBC for the insolvency resolution process would not include the lockdown period.
In a suo motu action, taking a intimation from the Supreme Court, the National Company Law Appellate Tribunal (“NCLAT”) vide order dated 30-03-2020 held the following and passed two orders in this effects as:
Looking at the orders one of them stated, “the time of lockdown forced by the Central Government in the wake of Covid-19 episode will not be the reason for the timetable for any action that couldn’t be finished because of such lockdown, corresponding to a corporate bankruptcy goal measure”.
Suspension of few sections namely section 7, 9 and 10 for one year
To forestall the budgetary pain looked by the organisations due to Covid has constrained the public authority to present another arrangement to be specific segment 10A of the Insolvency and Bankruptcy Code Section 7, Section 9 and Section 10 of the Code, 2016 being suspended for one year managing commencement of Corporate Insolvency Resolution Process (CIRP).
This suspension signifies a bar on the capacity of a money related loan boss, operational bank and a corporate candidate looking for inception of CIRP for a time of a half year, yet not surpassing a year as indicated by the first notice in such manner. However, on last Sunday dated 17-05-2020, the Finance service clarified that the IBC would stay suspended for another year making it complete one year suspension from the first notice.
The said statute intends to suspend Sections 7, 9 and 10 for one year of the IBC, to protect borrowers from being hauled into indebtedness. Segment 7 permits a money related loan boss to petition for starting the corporate bankruptcy goal measure against a corporate account holder. Area 9 accommodates use of bankruptcy by an operational leaser, while Section 10 is for inception of indebtedness procedures by a corporate candidate.
Likewise in the fifth public interview prior this Sunday on 17-03-2020, The Finance serve has shown that to secure the MSMEs another system for MSMEs will be told under segment 240A of the IBC.
Changes coming out of the developments
Firstly it is critical to take note of that the third Annual Insolvency Law Committee Report which was delivered on 20-02-2020 had just suggested expanding the limit sum from rupees 1 lakh to rupees 50 lakhs. The explanation that this advisory group set forth was to diminish the tension on the NCLT as expanding the edge will diminish the quantity of cases. However, for the situation because of the expansion of the limit to rupees one crore will affect the INC system. It is to be noticed that the activity lenders of corporate account holders in the vast majority of the cases are organisations itself, thus, they become helpless to turning into the forthcoming corporate borrowers if their current levy is not recuperated because of this expanded limit. In such a case this change will end up being counter beneficial and against the destinations of IBC.
Secondly, the warning that went ahead Notification dated 24.03.2020 doesn’t accommodate the review impact and consequently all things considered the previous edge of Rupees one lakh would keep on applying to cases that are forthcoming. In any case, the new applications looking for the beginning of CIRP would fundamentally need to meet the reexamined measure of default of at least Rupees one crore by the corporate indebted person.
The proviso to Section 12(3) of the IBC which read as follows:
“Provided further that the corporate insolvency resolution process shall mandatorily be completed within a period of three hundred and thirty days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under this section and the time taken in legal proceedings in relation to such resolution process of the corporate debtor:”
Therefore, there might occur a financial distress to such companies that are already undergoing CIRP and such companies would be required to complete the same within the stipulated time period of 330 days. Therefore, no measure has been taken to deal in such circumstances.
Thirdly, the other significant worry that has emerged out of this is that the results of suspending the IBC on operational leasers are similarly indistinct. It is presently a lot of sure that the operational loan bosses will currently demand more limited instalment terms and assurance of exchanges went into so that if any instance of bankruptcy emerges, they are not left with no possibilities of recuperating their operational obligation. It is similarly essential to address that the exchanges of corporate account holders with operational banks can be kept up with as meagre disturbance as could be expected under the circumstances.
Lastly, the other significant worry that has emerged out of this is that the results of suspending the IBC on operational leasers are similarly indistinct. It is presently a lot of sure that the operational loan bosses will currently demand more limited instalment terms and assurance of exchanges went into so that if any instance of bankruptcy emerges, they are not left with no possibilities of recuperating their operational obligation. It is similarly essential to address that the exchanges of corporate account holders with operational banks can be kept up with as meagre disturbance as could be expected under the circumstances.
In India, it took decades to bring a regime like Insolvency and Bankruptcy Code and with this pandemic we cannot go back from where we started. It is because of IBC that we have seen an improvement in the global ranking of doing business. IBC has not only taken the burden from the courts but has reformed optimisation of resources and reduced operational costs. While the whole world has been a witness to this pandemic India is no different and we shall not let this pandemic rewind the clock and are forced to start all over again.
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