{"id":243623,"date":"2021-02-09T22:20:26","date_gmt":"2021-02-09T16:50:26","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=243623"},"modified":"2021-02-12T10:38:28","modified_gmt":"2021-02-12T05:08:28","slug":"bar-under-section-10a-ibc-on-initiation-of-cirp-applies-retrospectively-march-25-2020-consciously-added-as-it-coincides-with-the-imposition-of-national-lockdown-sc","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2021\/02\/09\/bar-under-section-10a-ibc-on-initiation-of-cirp-applies-retrospectively-march-25-2020-consciously-added-as-it-coincides-with-the-imposition-of-national-lockdown-sc\/","title":{"rendered":"Bar under Section 10A IBC on initiation of CIRP applies retrospectively; ‘March 25, 2020’ consciously added as it coincides with the imposition of National Lockdown: SC"},"content":{"rendered":"

Supreme Court<\/strong>: The bench of Dr. DY Chandrachud*<\/strong> and MR Shah, JJ has held that there is nothing wrong with the bar imposed under Section 10A of Insolvency and Bankruptcy Code, 2016 on the filing of applications for the commencement of the CIRP in respect of a corporate debtor for a default occurring on or after 25 March 2020 retrospectively to application filed before June 5, 2020.<\/p>\n

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ISSUE<\/strong><\/span><\/h3>\n
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Whether the provisions of Section 10A stand attracted to an application under Section 9 which was filed before 5 June 2020 (the date on which the provision came into force) in respect of a default which has occurred after 25 March 2020?<\/p>\n

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ARGUMENTS<\/strong><\/span><\/h3>\n
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By appellant<\/strong><\/span><\/h4>\n

(i) Section 10A creates a bar to the ‘filing of applications’ under Sections 7, 9 and 10 in relation to defaults committed on or after 25 March 2020 for a period of six months, which can be extended up to one year;<\/p>\n

(ii) The Ordinance and the Act which replaced it do not provide for the retrospective application of Section 10A either expressly or by necessary implication to applications which had already been filed and were pending on 5 June 2020;<\/p>\n

(iii) Section 10A prohibits the filing of a fresh application in relation to defaults occurring on or after 25 March 2020, once Section 10A has been notified (i.e., after 5 June 2020);<\/p>\n

(iv) Section 10A uses the expressions “shall be filed” and “shall ever filed” which are indicative of the prospective nature of the statutory provision in its application to proceedings which were initiated after 5 June 2020; and<\/p>\n

(v) The IBC makes a clear distinction between the “initiation date” under Section 5(11) and the “insolvency commencement date” under Section 5(12).<\/p>\n

(vi) In each case it is necessary for the Court and the tribunals to deduce as to whether the cause of financial distress is or is not attributable to the Covid-19 pandemic.<\/p>\n

By Respondent <\/strong><\/span><\/h4>\n

(i) The legislative intent in the insertion of Section 10A was to deal with an extraordinary event, the outbreak of Covid-19 pandemic, which led to financial distress faced by corporate entities;<\/p>\n

(ii) Section 10A is prefaced with a non-obstante clause which overrides Sections 7, 9 and 10; and 9<\/p>\n

(iii) Section 10A provides a cut-off date of 25 March 2020 and it is evident from the substantive part of the provision, as well as from the proviso and the explanation, that no application can be filed for the initiation of the CIRP for a default occurring on and after 25 March 2020, for a period of six months or as extended upon a notification.<\/p>\n

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PROVISION IN QUESTION<\/strong><\/span><\/p>\n

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Section 10A is prefaced with a non-obstante provision which has the effect of overriding Sections 7, 9 and 10. Section 10A provides that:<\/p>\n

(i) no application for the initiation of the CIRP by a corporate debtor shall be filed;<\/p>\n

(ii) for any default arising on or after 25 March 2020; and<\/p>\n

(iii) for a period of six months or such further period not exceeding one year from such date as may be notified in this behalf.<\/p>\n

The proviso to Section 10A stipulates that “no application shall ever be filed” for the initiation of the CIRP of a corporate debtor “for the said default occurring during the said period”. The explanation which has been inserted for the removal of doubts clarifies that Section 10A shall not apply to any default which has been committed under Sections 7, 9 and 10 before 25 March 2020.<\/p>\n

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WHAT THE SUPREME COURT SAID<\/strong><\/span><\/h3>\n
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\u201cThe correct interpretation of Section 10A cannot be merely based on the language of the provision; rather it must take into account the object of the Ordinance and the extraordinary circumstances in which it was promulgated.\u201d<\/span><\/p>\n<\/blockquote>\n

Going into the legislative intent, the Court noticed that the date of 25 March 2020 has consciously been provided by the legislature in the recitals to the Ordinance and Section 10A, since it coincides with the date on which the national lockdown was declared in India due to the onset of the Covid-19 pandemic.<\/p>\n

The Ordinance and the Amending Act enacted by Parliament, adopt 25 March 2020 as the cut-off date.<\/p>\n