THE INSOLVENCY AND BANKRUPTCY CODE AMENDMENT (ORDINANCE), 2020


The IBC, 2016 is a landmark development within the dynamic world of resolution of stressed assets laws in our country. It seeks to consolidate the prevailing framework by making one law for IPC. The Central Government promulgated the IBC amendment ordinance, 2020. The scope of the implementation of the ordinance, 2020 in India in respect of the current scenario of the Indian economy. What's the reassertion concerning the validity of the said amendment as per stakeholders. A laborious effort is said to ascertain on numerous challenges faced, and the various benefits of emendation in India.


With the suspension, how will the Indian Government save the nation?

Since the institution, the code has been amended thrice. The insolvency and Bankruptcy Code (Amendment) Bill, 2020 was passed in Lok Sabha and Rajya Sabha. The bill was passed as it was created to get rid of the gridlock in the CIRP. The objective and aim of the ordinance were to guard the new owners of a loan defaulter company against the prosecution owing to the misdeeds of previous owners. The Bill was additionally replaced and passed as an ordinance.

The modification was promulgated by President Ramnath Kovind through the insolvency and Bankruptcy Code Ordinance, 2020 amending the certain provision of the code and it came into Immediate result from 5th June 2020 to suspend the operations of Sec 7, 9 & 10[1] and the Ordinance made insertion of latest clause Sec 10A and Sec 66(3) [2] within the IBC, 2016. it had been passed to stop the corporate persons from experiencing distress on account of the unprecedented situation throughout the COVID 19 period.


Changes made through the ordinance:

This ordinance was created to produce relief to the CD who are directly affected due to the COVID-19 pandemic widespread disruption of business operations across the country. within the meanwhile, of suspension period the OC, to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred will recover their debt through filing a lawsuit or the CD will avail for the Voluntary Liquidation under the winding-up mechanism of the Co. act, 2013 read with the Companies (Winding-up) Rules, 2020 that have come into force from April 1, 2020.

In the case of OC, it's mandated that the OC serves a demand notice to the OD. If the OC has issued the demand notice u/s 8, earlier than the date of notification that is 25 March 2020 then in those cases OC will proceed with the filing of an application under section 9 of IBC, 2016. The only factor that is changed is that the amount of default ought to be over one crore. Earlier the amount of default was one lakh that was changed by the amendment ordinance, 2020, raising the minimum threshold of default. the rise within the threshold limit was initially created to guard the small companies and MSMEs against the hit due to the lockdown imposed to curb the further spread of COVID-19. However, wherever the demand notice is sent after 25 March 2020 then there will be a bar on the filing of section 9 application.


Further Revamping

The RBI posted another circular in Sep 2020, with the target of rescheduling the timeline for the repayment of loans. As per the circular, the repayment of residual loans will be extended to a period of up to 2 years on installments taken from March 1 to August 31. Due to this unfortunate situation of the pandemic economy is suffering a lot and, during this situation, certainly, there is a high likelihood of missing an EMI. The authorities for the recovery process might take harsh steps which may affect adversely the credit score of an individual. Therefore, the RBI bestows additional relaxation to the borrowers by extending the 2-year period for repayment of loans. this situation will analyze from the landmark of Embassy Property Development Pvt. Ltd. vs. State of Karnataka[3], wherever in the issue was of deemed extension of lease granted by the govt. The apex court concluded that Section 14 of IBC solely prohibits the right to be dispossessed but not the right to renewal of the lease.


Does the ordinance have a retrospective effect or prospective effect??

As per the precedent over the years the SC has laid down that, S.L. Srinivasa Jute Twine Mills v. Union of India[4], a statute is deemed to be applied prospectively unless expressly mentioned otherwise. However, the applicability of the increased threshold limit is still being interpreted as due to the judicial interference as it was only made by the notification, not by the amendment itself. further RBI by a notification dated 23 May 2020 has extended EMI moratorium for an additional 3 months on term loans, and the suspension of section 7 does not remain much great importance because it provides the FC an extended moratorium of total 6 months. However, the ordinance disservices the OC as FC already have the moratorium under RBI.

The NCLT of the Kolkata and Chennai Benches vide their Orders dated 20 March 2020 have brought some clarity to this issue. Hon’ble Adjudicating Authorities once taking into consideration held that the law didn't expressly confer any power on the delegate to issue the impugned notification with the retrospective result. it absolutely was held that the notification dated 24 March 2020 is just prospective in nature and thereby permitting the unfinished cases before the assorted AA across the country to return to the conclusion of the maintainability on the grounds of minimum threshold limit of default being questioned, as on date[5].

The objective behind IBC is to safeguard the firms by providing them a second probability even after default financially or operationally. Section 10[6] provides the locus standi to the company debtors to voluntarily apply for the CIRP petition against itself and start the proceedings while increasing the assets in the interest of all the stakeholders.

The major policy reforms created by the minister in IBC, 2016 brought a no. of ambiguous queries within the economic condition and Bankruptcy procedure for the time being in effect. The main amendment is brought down is with respect to “default” and “wrongful trading”.


CONCLUSION:

The IBC, 2016 has invariably seemed like a piece of equipment for the protection of the rights of investors during a company entity. An outrageous got to protect the COVID 19 scenario was so exigent that a line of choices has been taken. Because of the dynamic nature of the corporate world, it's persistent to amend the code with the target of re-organization and insolvency resolution in a time-bound manner for maximization of value of assets. The Insolvency and Bankruptcy Code operate joined of the support systems to save lots of the businesses from going insolvent. Although, in spite of the virtuous purpose of the amendments, many of these changes are half sighted and will constitute issues for stakeholders within the long-term. The relaxations have to accommodate every person and not merely focuses on one or additional groups; therefore, there is the necessity of reviewing the said amendments. Henceforth, it is anticipated that the legislature will appear as the ideal means of balancing the pre-pack framework of the govt.




[1] THE INSOLVENCY AND BANKRUPTCY CODE, 2016, NO. 31, Acts of Parliament, 2016 (India). [2] THE INSOLVENCY AND BANKRUPTCY CODE (AMENDMENT) ACT, 2020, NO. 1, Act of Parliament, 2020 (India). [3]Embassy Property Development Pvt. Ltd. vs. State of Karnataka, Civil Appeal No. 9170 0f 2019. [4]S.L. Srinivasa Jute Twine Mills v. Union of India, (2006) 2 SCC 740. [5]Anant Merathia and Poornima Devi, IBC Amendment Ordinance 2020: No fresh insolvency for default after lockdown declaration, The New Indian Express (Sept. 10, 2020, 9:48 PM), https://www.newindianexpress.com/business/2020/jun/08/ibc-amendment-ordinance-2020-no-fresh-insolvency-for-default-after-lockdown-declaration-2153907.html. [6] THE INSOLVENCY AND BANKRUPTCY CODE, 2016, NO. 31, Acts of Parliament, 2016 (India).

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