{"id":231149,"date":"2020-06-20T12:00:32","date_gmt":"2020-06-20T06:30:32","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=231149"},"modified":"2020-07-14T18:01:47","modified_gmt":"2020-07-14T12:31:47","slug":"ibc-ordinance-2020-calibrated-approach-contradiction","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2020\/06\/20\/ibc-ordinance-2020-calibrated-approach-contradiction\/","title":{"rendered":"IBC Ordinance 2020: Calibrated Approach &#038; Contradiction"},"content":{"rendered":"<p class=\"p2\" style=\"text-align: justify;\"><span class=\"s1\">On 05.06.2020, the President of India promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 (\u201cthe Ordinance\u201d)<strong><span style=\"color: #0000ff;\">[1]<\/span><\/strong>. The Ordinance has been brought in to suspend the insolvency proceedings under the Insolvency and Bankruptcy Code, 2016<strong><span style=\"color: #0000ff;\">[2]<\/span><\/strong> (\u201cthe Code\u201d) for a period of 6 months. The Ordinance has inserted a new section under the code i.e. Section 10-A<strong><span style=\"color: #0000ff;\">[3]<\/span><\/strong>. Section 10-A states that no application can be filed under Sections 7, 9 and<span class=\"Apple-converted-space\">\u00a0 <\/span>10 for a default committed on or after 25.03.2020 for a period of six months. It also provides that the same can be extended for another period of six months as and when notified at a later date. <\/span><\/p>\n<p class=\"p2\" style=\"text-align: justify;\"><span class=\"s1\">The Ordinance was part of the Atamnirbhar package which was announced<strong><span style=\"color: #0000ff;\">[4]<\/span><\/strong> by the Finance Minister on 17.05.2020 to provide relief to the companies who are on the verge of insolvency<strong><span style=\"color: #0000ff;\">[5]<\/span><\/strong>. The Finance Minister had announced that the fresh insolvency filings period will be suspended for a period of one year. However, the Ordinance has only suspended the fresh insolvency filings for a period of six months. It may extend for another period of six months or for further period not extending beyond a period of one year from a date as and when notified by the Government. <\/span><\/p>\n<p class=\"p2\" style=\"text-align: justify;\"><span class=\"s1\">There are various reasons which have been cited by the Government for the promulgation of the Ordinance which are as follows;<\/span><\/p>\n<ul class=\"ul1\" style=\"text-align: justify;\">\n<li class=\"li2\"><span class=\"s1\"><i>COVID-19 pandemic has impacted business, financial markets across the world including India and created uncertainty and stress for business beyond their control.<\/i><\/span><\/li>\n<li class=\"li2\"><span class=\"s1\"><i>The nationwide lockdown since 25.04.2020 has added disruption to the normal business operations.<\/i><\/span><\/li>\n<li class=\"li2\"><span class=\"s1\"><i>It is difficult to find adequate number of resolution applicants to rescue the corporate person<\/i><\/span><\/li>\n<li class=\"li2\"><span class=\"s1\"><i>It is expedient to exclude the defaults arising on account of unprecedented situation.<\/i><\/span><\/li>\n<\/ul>\n<p class=\"p2\" style=\"text-align: justify;\"><span class=\"s1\">The Ordinance has effectively provided a breather, at least for now, to the companies who may commit default on their debt obligation on or after 25.03.2020 till 25.09.2020. Interestingly since Section 9 is also suspended, many big retailers and small retailers who have committed default in the payment of rents and also defaulted in the payment obligations during<span class=\"Apple-converted-space\">\u00a0 <\/span>COVID-19 period of six months from 25.3.2020 are equally protected. It means that the fast track mechanism to recover the debts of financial creditors and operational creditors under the IBC, during the period of six months from 25.3.2020 has been given a decent burial.<\/span><\/p>\n<p class=\"p2\" style=\"text-align: justify;\"><span class=\"s1\">With the new Ordinance in place, the suspension can also be extended for another period of six months i.e. till 25.03.2021. It is also clarified under the newly inserted Section 10-A that it will not apply to any default which occurred before 25.03.2020. Therefore, corporate insolvency resolution process (CIRP) can be initiated for any account which was declared a non-performing account (NPA) or a default committed before 25.03.2020. <\/span><\/p>\n<p class=\"p2\" style=\"text-align: justify;\"><span class=\"s1\">Prima facie, there is an apparent conflict in the Ordinance. Section 10-A states that the proceedings cannot be filed for the default that occurred on or after 25.03.2020, for a period of six months. Ordinarily it could have meant that the insolvency proceedings for these defaults can be filed after the period of six months. However, the proviso to the section states that no application <i>shall ever be filed<\/i> for the default committed during this period of six months. This proviso is in the form an amnesty clause. It provides that the insolvency proceedings cannot ever be initiated against the company for the default that occurred during this period. <\/span><\/p>\n<p class=\"p2\" style=\"text-align: justify;\"><span class=\"s1\">On one hand, the Ordinance is suspending the filing of the proceedings under Sections 7, <span class=\"Apple-converted-space\">\u00a0 <\/span>9 and 10 for a period of six months whereas on the other hand, it is stating that the same will remain suspended in perpetuity. If the intention of the Ordinance is to suspend the insolvency proceedings temporarily, then there is no requirement for providing the perpetual suspension in the proviso. It appears that there is no possible harmonious interpretation of the section and the proviso attached to it. A tweet<strong><span style=\"color: #0000ff;\">[6]<\/span><\/strong> by the Insolvency and Bankruptcy Board of India, regulator under the Code also stated that the default during COVID-19 shall not be the basis for initiation of Insolvency at <i>any time.<\/i> This intention runs counter to what is stated in the main section.<span class=\"Apple-converted-space\">\u00a0 <\/span>The Supreme Court in<span class=\"Apple-converted-space\">\u00a0 <\/span><i>J.K. Industries Ltd.<\/i> v. <i>Chief Inspector of Factories and Boilers<\/i><span style=\"color: #0000ff;\"><strong>[7]<\/strong><\/span>,<span class=\"Apple-converted-space\">\u00a0 <\/span>held that; <\/span><\/p>\n<blockquote>\n<p class=\"p2\" style=\"text-align: justify;\"><span class=\"s1\"> \u201c<i>35. <\/i>Indeed, in some cases, a proviso, may be an exception to the main provision <i>though it cannot be inconsistent with what is expressed in the main provision and if it is so, it would be ultra vires of the main provision and struck down<\/i>. As a general rule in construing an enactment containing a proviso, it is proper to construe the provisions together without making either of them redundant or otiose. Even where the enacting part is clear, it is desirable to make an effort to give meaning to the proviso with a view to justify its necessity<i>.\u201d <\/i><\/span><\/p>\n<\/blockquote>\n<p class=\"p2\" style=\"text-align: right;\"><span class=\"s1\"> (emphasis supplied)<\/span><\/p>\n<p class=\"p2\"><span class=\"s1\">The apparent conflict between the main section and the proviso is required to be resolved immediately to avoid any further confusion.<\/span><\/p>\n<p class=\"p2\" style=\"text-align: justify;\"><span class=\"s1\">However, there can be a possible reason for providing the perpetual suspension. The Finance Minister also announced that<span class=\"Apple-converted-space\">\u00a0 <\/span>COVID-19 induced defaults will be kept outside the purview of the Code. The proviso to Section 10-A may be inserted for that purpose but the same nowhere refers to any COVID-19 induced default. Also, there is no definition provided under the Ordinance for any COVID-19 induced default. On the contrary, since the proviso has used the term <i>\u201csaid default\u201d,<\/i> it is referring to the same defaults which are mentioned under Section 10-A. Therefore, the perpetual suspension of the default cannot be justified by any stretch of imagination. <\/span><\/p>\n<p class=\"p2\" style=\"text-align: justify;\"><span class=\"s1\">It is also pertinent to mention that the Ordinance has also suspended fresh insolvency under Section 10 of the Code. Section 10 allowed for voluntary insolvency proceedings i.e. if a company is unable to meet its debt obligation then it can on its own file for insolvency. It is beyond any comprehension as to why force an insolvent company to continue its business. It will only lead to the reduction in the value of the company. The same will act as an impediment for the resolution of the same as a going concern. <\/span><\/p>\n<p class=\"p2\" style=\"text-align: justify;\"><span class=\"s1\">The Ordinance has also amended Section 66 of the Code which provides right to the Resolution Professional (RP) to file an application for against any business of corporate debtor which is being carried with the intent to defraud the creditors. A new sub-section is being added to exempt the RP from filing any application under Section 66 for the defaults for which CIRP is being suspended under Section 10-A. This particular amendment was necessary as lot of changes in the loan structure of the corporate debtor will be done in order to mitigate the disruption caused by the pandemic which may change the priority of creditors under Section 53 of the Code. <\/span><\/p>\n<p class=\"p2\" style=\"text-align: justify;\"><span class=\"s1\">The Ordinance has provided a much-needed relief to the companies. It has provided at least a period of six months to the companies to get back on their feet and continue fulfilling their repayment of debt obligations. The Ordinance has also taken into consideration the<span class=\"Apple-converted-space\">\u00a0 <\/span>interest of the financial institutions by not providing a blanket suspension of any proceedings to recover a debt, which was floated earlier. It needs to be seen how well the debtors would take this opportunity to streamline their businesses. Otherwise it will go the same way as the defaults committed in MUDRA loans. This small dose of help by the Government should not be misused by the defaulters. However, the apparent conflict between the main section and the proviso needs to be resolved on an immediate basis.<\/span><\/p>\n<hr \/>\n<p class=\"p1\" style=\"text-align: justify;\"><strong><span class=\"s1\" style=\"color: #008000;\">*Delhi based Advocate<\/span><\/strong><\/p>\n<p class=\"p1\" style=\"text-align: justify;\"><strong><span class=\"s1\" style=\"color: #008000;\">** Student, National University of Study and Research in Law<\/span><\/strong><\/p>\n<p class=\"p1\" style=\"text-align: justify;\"><span class=\"s1\"><strong><span style=\"color: #0000ff;\">[1]<\/span><\/strong> <a href=\"http:\/\/www.scconline.com\/DocumentLink\/SIKxK47Z\">The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 [No. 9 of 2020]<\/a>.\u00a0<\/span><\/p>\n<p style=\"text-align: justify;\"><strong><span style=\"color: #0000ff;\">[2]<\/span><\/strong> <a href=\"http:\/\/www.scconline.com\/DocumentLink\/86F742km\"><span style=\"font-family: -apple-system, BlinkMacSystemFont, 'Segoe UI', Roboto, Oxygen-Sans, Ubuntu, Cantarell, 'Helvetica Neue', sans-serif;\">Insolvency and Bankruptcy Code, 2016\u00a0<\/span><\/a><\/p>\n<p style=\"text-align: justify;\"><strong><span style=\"color: #0000ff;\">[3]<\/span><\/strong> <span class=\"s1\"><a href=\"http:\/\/www.scconline.com\/DocumentLink\/SIKxK47Z\">Section 10-A, Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020<\/a> <span class=\"Apple-converted-space\">\u00a0\u00a0<\/span><\/span><\/p>\n<p style=\"text-align: justify;\"><strong><span style=\"color: #0000ff;\">[4]<\/span><\/strong> <a href=\"https:\/\/economictimes.indiatimes.com\/small-biz\/sme-sector\/fm-provides-covid-19-relief-no-fresh-insolvency-proceeding-against-msmes-for-1-year\/articleshow\/75785351.cms?from=mdr\"><span class=\"s1\"><i>Economic Times<\/i>, FM provides Covid-19 relief, no fresh insolvency proceeding against MSMEs for 1 year <\/span><\/a><\/p>\n<p class=\"p1\" style=\"text-align: justify;\"><strong><span style=\"color: #0000ff;\">[5]<\/span><\/strong> <span class=\"s1\">Press Information Bureau, Finance Minister announces Government Reforms and Enablers across Seven Sectors under AatmaNirbhar Bharat Abhiyaan<i>,<\/i> 17.05.2020. Available at: <a href=\"https:\/\/pib.gov.in\/PressReleasePage.aspx?PRID=1624661\">https:\/\/pib.gov.in\/PressReleasePage.aspx?PRID=1624661<\/a><\/span><\/p>\n<p style=\"text-align: justify;\"><strong><span style=\"color: #0000ff;\">[6]<\/span><\/strong> <a href=\"https:\/\/twitter.com\/IBBIlive\/status\/1268932122519060480\">https:\/\/twitter.com\/IBBIlive\/status\/1268932122519060480<\/a><\/p>\n<p style=\"text-align: justify;\"><strong><span style=\"color: #0000ff;\">[7]<\/span><\/strong> <span class=\"s1\"><a href=\"http:\/\/www.scconline.com\/DocumentLink\/1DPQYeWk\">(1996) 6 SCC 665<\/a><span class=\"Apple-converted-space\"> \u00a0<\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>by P. Nagesh* &#038; Akshay Sharma**<\/p>\n","protected":false},"author":8808,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[42503,1191],"tags":[42048,39924,42049,22064],"class_list":["post-231149","post","type-post","status-publish","format-standard","hentry","category-legal-analysis","category-op-ed","tag-atmnirbhar","tag-covid-19","tag-ibc-ordinance-2020","tag-insolvency-and-bankruptcy-code"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.4 (Yoast SEO v26.4) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>IBC Ordinance 2020: Calibrated Approach &amp; Contradiction | SCC Times<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.scconline.com\/blog\/post\/2020\/06\/20\/ibc-ordinance-2020-calibrated-approach-contradiction\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"IBC Ordinance 2020: Calibrated Approach &amp; Contradiction\" \/>\n<meta property=\"og:description\" content=\"by P. 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Suspension of initiation of corporate insolvency resolution process. \"Notwithstanding anything\u00a0 contained in Sections 7, 9 and 10, no application for initiation of corporate insolvency process of a corporate debtor shall be filed, for\u2026","rel":"","context":"In &quot;Legislation Updates&quot;","block_context":{"text":"Legislation Updates","link":"https:\/\/www.scconline.com\/blog\/post\/category\/legislationupdates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":236288,"url":"https:\/\/www.scconline.com\/blog\/post\/2020\/09\/25\/presidential-assent-insolvency-and-bankruptcy-code-second-amendment-act-2020-temporary-suspension-of-initiation-of-corporate-insolvency-resolution-process\/","url_meta":{"origin":231149,"position":1},"title":"Presidential Assent | Insolvency and Bankruptcy Code (Second Amendment) Act, 2020; Temporary Suspension of Initiation of Corporate Insolvency Resolution Process","author":"Bhumika Indulia","date":"September 25, 2020","format":false,"excerpt":"The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2020 received Presidential assent on 23-09-2020. Insolvency and Bankruptcy Code (Second Amendment) Act, 2020 Key Features: Suspension of Initiation of Corporate Insolvency Resolution Process In light of the extraordinary situation caused by the COVID-19 pandemic, a need was felt to temporarily suspend\u2026","rel":"","context":"In &quot;Legislation Updates&quot;","block_context":{"text":"Legislation Updates","link":"https:\/\/www.scconline.com\/blog\/post\/category\/legislationupdates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":246487,"url":"https:\/\/www.scconline.com\/blog\/post\/2021\/04\/05\/president-promulgates-insolvency-and-bankruptcy-code-amendment-ordinance-2021\/","url_meta":{"origin":231149,"position":2},"title":"President promulgates Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021","author":"Bhumika Indulia","date":"April 5, 2021","format":false,"excerpt":"On April 04, 2021, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 has been promulgated by the President in order to amend the Insolvency and Bankruptcy Code, 2016. Key amendments discussed below: Proviso has been inserted in Section 4 relating to Application of Part II: \u201cProvided further that the Central\u2026","rel":"","context":"In &quot;Legislation Updates&quot;","block_context":{"text":"Legislation Updates","link":"https:\/\/www.scconline.com\/blog\/post\/category\/legislationupdates\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/04\/MicrosoftTeams-image-50.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/04\/MicrosoftTeams-image-50.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/04\/MicrosoftTeams-image-50.png?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/04\/MicrosoftTeams-image-50.png?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/04\/MicrosoftTeams-image-50.png?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":223553,"url":"https:\/\/www.scconline.com\/blog\/post\/2019\/12\/24\/cabinet-approves-promulgation-of-the-insolvency-and-bankruptcy-code-amendment-ordinance-2019\/","url_meta":{"origin":231149,"position":3},"title":"Cabinet approves Promulgation of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019","author":"Bhumika Indulia","date":"December 24, 2019","format":false,"excerpt":"The Union Cabinet approved a proposal to promulgate an Ordinance to amend the Insolvency and Bankruptcy Code, 2016. The Amendment will remove certain ambiguities in the Insolvency and Bankruptcy Code, 2016 and ensure smooth implementation of the Code. Under the Amendments, the liability of a corporate debtor for an offence\u2026","rel":"","context":"In &quot;Cabinet Decisions&quot;","block_context":{"text":"Cabinet Decisions","link":"https:\/\/www.scconline.com\/blog\/post\/category\/legislationupdates\/cabinet_decisions\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2019\/02\/CABINET-SECRETARIAT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2019\/02\/CABINET-SECRETARIAT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2019\/02\/CABINET-SECRETARIAT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2019\/02\/CABINET-SECRETARIAT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2019\/02\/CABINET-SECRETARIAT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":223671,"url":"https:\/\/www.scconline.com\/blog\/post\/2019\/12\/30\/president-promulgates-insolvency-and-bankruptcy-code-amendment-ordinance-2019\/","url_meta":{"origin":231149,"position":4},"title":"President promulgates Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019","author":"Bhumika Indulia","date":"December 30, 2019","format":false,"excerpt":"President on 28-12-2019 promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 to amend the Insolvency and Bankruptcy Code, 2016. Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019 was introduced in the House of People on 12-12-2019 though it could not be taken up for consideration. At present, though the\u2026","rel":"","context":"In &quot;Legislation Updates&quot;","block_context":{"text":"Legislation Updates","link":"https:\/\/www.scconline.com\/blog\/post\/category\/legislationupdates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":241822,"url":"https:\/\/www.scconline.com\/blog\/post\/2021\/01\/06\/individual-insolvency-under-part-3-of-ibc-2016-why-the-provisions-ought-to-be-reviewed\/","url_meta":{"origin":231149,"position":5},"title":"Individual Insolvency under Part 3 of IBC, 2016 \u2013 Why the provisions ought to be reviewed","author":"Bhumika Indulia","date":"January 6, 2021","format":false,"excerpt":"by Vipul Kumar*","rel":"","context":"In &quot;Op Eds&quot;","block_context":{"text":"Op Eds","link":"https:\/\/www.scconline.com\/blog\/post\/category\/op-ed\/legal-analysis\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/01\/insovency-1.png?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/01\/insovency-1.png?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/01\/insovency-1.png?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/01\/insovency-1.png?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2021\/01\/insovency-1.png?resize=1050%2C600&ssl=1 3x"},"classes":[]}],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/231149","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/users\/8808"}],"replies":[{"embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/comments?post=231149"}],"version-history":[{"count":0,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/posts\/231149\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/media?parent=231149"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/categories?post=231149"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.scconline.com\/blog\/wp-json\/wp\/v2\/tags?post=231149"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}