The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 was published by Ministry of Law and Justice on 5th June 6, 2020 with number 9. 2020 and has already stirred enormous amusement, disappointment among lawyers as well as glee and satisfaction among the industries who are bearing the brunt of COVID- 19, the unknown which has impacted business, financial markets and economy all over the world, including U.S.A. which renounced the effect of environmental disasters in its recent utterances. Of course, it brought disasters in India including to the writer of this article of 70 years, condemned to his house for the past 62 days or more.
But, as a practicing Insolvency Professional, currently handling one case as Authorized Representative in one housing project under CIRP and as liquidator in another case under IBC, 2016, how do I feel about this ordinance and what are its effects on my profession, its future or its impacts on industries whom technically the ordinance tries to save.
Let us debate.
3-page Gazette of India notification was issued on 5th June 6, 2020. Some basic analysis of the ordinance says:
The ordinance has included after section 10, another one called 10A. which reads in simple terms as under:
No application under sections 7,9 or 10 for initiation of corporate insolvency process will be filed for any default arising on or after 25th March, 2020 for a period of 6 months or such other period not exceeding one year from such date to be notified later. However, this may not be applicable for any default committed under said sections before 25th March, 2020.
Further, another section 3 in amendment of section 66 was also incorporated under the ordinance.
The amendment to appear after sub-section 2 of section 66. Actual wording reproduced from ordinance.
“3. In section 66 of the principal Act, after sub-section(2) the following sub-section shall be inserted, namely:
(3) Not withstanding anything contained in this section, no application would be filed by a resolution professional under sub-section 2 in respect of such default against initiation of corporate insolvency resolution process is suspended as per section 10A.”
My observations got sharpened after reading the views sent to us, I P s by many respected lawyers, particularly on I B Code 2016 after promulgation of the ordinance. Various intellectual disputes arose as under.
Apart from non-enabling filing of applications under Sections 7, 9, and 10, no application shall be filed for any default arising on or after 25th March, 2020, particularly keeping in mind the hardship being faced by industries due to COVID-19 but also the difficulties in finding resolution applicants to rescue those entrenched industries under CIRP.
But insertion of section 10A makes the arguments susceptible to the notion that it would not be the onus on Adjudicating Authority/NCLT to determine the timing of default whether before or after 25th March, 2020. One would have normally expected this course of action on the part of AA/NCLT. But by prohibiting the filing of any application to initiate CIRP, this argument does not hold water.
Let us consider inclusion of 3. Under 66, the IB Code 2016 the previously held instructions dealt with action that would be taken by AA in case any business of CD had been carried on to defraud creditors of CD or for any fraudulent purpose. This was possible on the application moved by RP so that those who did the fraudulent activities would such contributions to the assets of the CD.
Section 2. dealt with a situation when the director or a partner of the company would be ordered by AA to make contributions to the assets of the CD.
However, with the inclusion of section 3, action of AA would be impossible since RP was prohibited from filing of application.
Interesting discussions occur among lawyers who are the life line of the said act. Let us narrate them.
Let us be honest that none can question the intention of the ordinance which clearly explains the gloomy economy and other obstacles being faced by all including industries who have lost, men, materials, labor, capital or the whole working cycle in India as well as else where in the world. Can one live in vacuum when he/she is not even allowed to move or act according to one’s valor which would have resulted in consequences including death?
Some of the legal issues would definitely be raised in courts of law and NCLT would aptly hold grasp of the issues and administer the required justice.
Out of three cases where I had equation with during these days of online court proceedings starting with video conferencing with the current arguments sent by each constituent of a case sent in a capsule for the judge to hear and decide, two were postponed due to COVID-19 while the one in supreme court, got the required ruling. The judges in closed quarters alone do understand or appreciate the constraints. Even during further liberalization period, as the ordinance provides seclusion from new cases, older ones would get life and see the light at the end of the tunnel. Yes, for some who will face defaults it will be a loss.
We often heard complaints from companies which needed guidance or ruling on Companies Act 2013 from NCLT got drifted away due to I B Code 2016 cases which were given priority.
Personally, if you ask me, I would say anything to do new during the period after March 25, 2020 would get no new breather and considered as good as dead. It is time for the industries to revive their trading cycle again with the economy slowly picking up the thread.
Also, one would like to know how the experienced lawyers who have faced the life with many legal battles including one under emergency, would react to this new ordinance and guide us with their suggestions/legal solutions, if any.
An exciting future awaits us.