The ordinance said a sub-section will be inserted after Section 66 of the IBC
The government on Friday notified an ordinance to suspend insolvency proceedings for up to one year against fresh default from March 25. The move will potentially provide breather to thousands of firms battered by the pandemic.
“Notwithstanding anything contained in Sections 7, 9 and 10 (of the Insolvency and Bankruptcy Code), no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after March 25, 2020, for a period of six months or such further period not exceeding one year from such date, as may be notified in this behalf…,” the ordinance said.
These sections (7, 9 and 10) deal with the initiation of the insolvency proceedings by financial and operational creditors and corporate debtors. However, insolvency applications filed for default before March 25 will be entertained.
The government has introduced a sub-section – 10A – in the IBC to declare the relaxation. It has also extended some relief to firms under Section 66 of the IBC. This Section suggests: “If during the corporate insolvency resolution process or a liquidation process, it is found that any business of the corporate debtor has been carried on with intent to defraud creditors of the corporate debtor or for any fraudulent purpose, the adjudicating authority (NCLT) may on the application of the resolution professional pass an order that any persons who were knowingly parties to the carrying on of the business in such manner shall be liable to make such contributions to the assets of the corporate debtor as it may deem fit.”
The ordinance said a sub-section will be inserted after Section 66 of the IBC: “Notwithstanding anything contained in this Section, no application shall be filed by a resolution professional under sub-section (2) in respect of such default against which initiation of corporate insolvency resolution process is suspended as per Section 10-A.”
The cut-off date of March 25 also comes as a relief for the lenders who had filed applications or intended to do so against stressed firms that had defaulted before the pandemic started to spread, in sync with the central bank’s June 7, 2019 circular. According to this circular, a default case will have to be referred to the NCLT under the IBC if no other resolution plan is firmed up within six months.