The President of India through Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 (No. 9 of 2020) on 5th June, 2020 announced some major relief for the corporate debtors as COVID 19 pandemic owing to the nationwide lockdown is in force since 25th March 2020 has resulted in disruption in business, financial markets and economy in India and around the world and creating uncertainty and stress for businesses beyond their control.
Insertion of Section 10 A – Suspension of application under Section 7, 9 and 10.
In current situation, to prevent the corporate persons which are experiencing distress being pushed into insolvency proceedings under the IB Code,2016 and to exclude the defaults arising due to the unprecedented situation of distress from the insolvency proceedings.
The ordinance inserted a new section 10A – “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”.
Thus, the ordinance suspended the filing of applications for corporate insolvency resolution process (CIRP) of a corporate debtor under Section 7 (Application by financial creditor), Section 9 (Application by operational creditor) and Section 10 (Application by corporate applicant) for any default arising on or after 25th March, 2020 for a period of six months. (this suspension might be extended further up to 1 year.)
However, as part of explanation, the ordinance mentioned “ For the removal of doubts, it is hereby clarified that the provisions of this section 10A shall not apply to any default committed under the said sections before 25th March,2020)” , which means that creditors can still file application where default in payment is committed before 25.03.2020 provided the amount of default exceeds the basic threshold of Rs 1 crore.