1. The Insolvency and Bankruptcy Code (Amendment) Ordinance 2020
An Ordinance was passed on 5th June 2020, by the President of India in furtherance to the announcement earlier made by Hon'ble Finance Ministry w.r.t suspension of Fresh cases to be filed under Section 7, 9 and 10 of Insolvency and Bankruptcy Code, 2016 ("I&B Code") due to the impact of COVID-19 pandemic on business, financial markets and economy all over the world, including India and the uncertainty and stress for business been created due to the reasons beyond the control of anybody. Vide the Ordinance the I&B Code 2016 is amended and a new Section 10A is inserted after Section 10. The newly inserted Section 10A reads as:
Notwithstanding anything contained in sections 7, 9 and 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March 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:
Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period.
Explanation: For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any default committed under the said sections before 25th March 2020.
That prior to amendment when the announcements were made of suspension of fresh insolvency application, there was confusion about what all will be exempted. Now it is clear that the bar will be only w.r.t those defaults which have occurred on or after 25th March 2020 till the period the suspension remains. Further, w.r.t defaults which occurred during the period suspension period no proceedings under I&B Code 2016 will ever be taken. W.r.t this forever exemption more clarity is still required.
Another amendment made via Ordinance is the insertion of sub-section (3) in Section 66 which deals with Fraudulent trading or wrongful trading. Section 66 provides right to Resolution Professional to file an application before Adjudicating Authority to pass the needful order if it is found that any business of the Corporate Debtor has been carried on with intent to draft creditors. The newly inserted sub-section (3) reads as
(3) 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 10A.
2. Minimum Default under I&B Code raised to Rupees One Crore.
Vide notification dated 24.03.2020 by the Ministry of Corporate Affairs ("MCA"), in a major amendment made to the Insolvency and Bankruptcy Code, 2016 ("I&B Code"), the Central Government has raised the minimum amount of the default to INR 1 Crore from INR 1 lakh. Section 4 of the I&B Code has been accordingly amended. This means that a Corporate Insolvency Resolution Process can be commenced w.r.t a company if there is a non-payment of debt of INR 1 crore or more.
The reasons for this amendment, as notified by government were:
- The banks may look at other options for recovering loans before invoking the I&B Code, especially in those cases where the amount of bad loans is not significant.
- In few sectors applications are filed by the single class borrower, wherein, an otherwise well-functioning company comes to NCLT and mostly faces CIRP.
- To prevent the abuse of the I&B Code and ensure that only genuine applications are filed.
- To unclog the judicial system that has been congested by numerous applications being filed under the I&B Code, that could have been resolved outside the I&B Code's purview.
3. Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2020.
The Insolvency and Bankruptcy Board of India ("IBBI") has amended the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 vide notification dated 20th April 2020, effective from 25th March 2020.
IBBI vide this notification has amended Regulation 40B, wherein sub-regulation (4) has been substituted. Regulation 40B provides for filing of forms concerning each stage and period covered under the Code, by the insolvency professional, interim resolution professional or resolution professional, as the case may be on an electronic platform of the Board, as per the timelines stipulated against each Form with respect to each stage and period covered under the Code.
Post this substitution, the delay in filing of any form under Regulation by the Insolvency Professional, Interim Resolution Professional, or Resolution Professional, whether by correction, updation or otherwise, shall lead to a fee of INR 500 per Form for each calendar month of delay after 1st October 2020. Hereinafter, a Form filed after 30th October 2020, from 31st October 2020 shall attract a fee of INR 500. Before this amendment, the fee was attracted after a delay of a calendar month after 1st April 2020.
4. Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2020.
The Insolvency and Bankruptcy Board of India ("IBBI") has amended the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 vide notification dated 20th April 2020, effective from the date 29th March 2020.
IBBI vide this notification has inserted Regulation 40C, wherein it provides that the timelines contained in these regulations, subject to the provisions in the I&B Code, during the period of lockdown imposed by the Central Government in the wake of COVID-19 outbreak shall not be counted for the timeline for any activity that could not be completed due to such lockdown, in relation to a CIRP.
5. Insolvency and Bankruptcy Board of India (Liquidation Process) (Second Amendment) Regulations, 2020.
A new regulation, namely, "Regulation 47A: Exclusion of period of lockdown" was inserted vide the said regulations, whereby the period of lockdown imposed by the Central Government in the wake of Covid-19 outbreak was excluded from being counted for computation of the timeline for any task that could not be completed due to such lockdown, in relation to any liquidation process.
The amended regulation was deemed to have come into force, w.e.f 17th April 2020, to clarify to the stakeholders regarding the model timeline in the completion of various tasks in the liquidation process. No person is adversely affected by giving retrospective effect.
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