Every human being across the globe is fighting against a pandemic situation caused due to COVID-19 a disease that initially sprouted in China, but spread its vicious roots, devastating mankind and the economies across the globe. Despite several attempts by the Indian government, the deadly virus managed to creep in and spread into different parts of the country. To combat the situation and to stop the spread of virus a nationwide lockdown was imposed by the government on 25th March 2020 which has been extended till 31st May 2020. The economy which was reviving from the slump due to the Demonetisation Movement of 2016 and introduction of the Goods and Service Tax Act in 2017 could not battle the pandemic situation and started declining at an alarming rate. Therefore, to revive the economy and to give it a boost the Indian Government introduced the “Atmanirbhar Bharat” scheme.
Through the scheme, the government infused ? 20,00,000 Crore in the economy through various packages, reliefs, and legal amendments. One of the major announcements by our Finance Minister Smt. Nirmala Sitharaman was to amend the Insolvency and Bankruptcy Code, 2016 (IBC) code in order to shelter the companies facing the threat of insolvency due to defaults owing to the pandemic. The following amendments were announced under the scheme:
The threshold limit of the amount in default for invoking insolvency proceedings against any corporate debtor was raised from ? 1,00,000/- to ? 1 crore vide notification S.O. 1205(E).
The provisions of Section 7,9 and 10 of the code which relates to the initiation of insolvency proceedings by a financial creditor, operational creditor, and debtor (voluntary insolvency), respectively against a corporate debtor has been suspended for upto 1
The amendments introduced under the Atmanirbhar Bharat scheme in the code may be a ray of hope for various Corporate Debtors who were unable to repay their debts but it might pose a disaster for the Creditors (i.e. Operational and Financial Creditors).
The Insolvency and Bankruptcy Code was introduced in the year 2016 to provide a one-stop solution for resolving insolvencies which previously was a long process vide the civil procedure code that did not offer an economically viable arrangement for small investors and business owners. The code aimed to protect the interests of such small investors and business owners and facilitate the ease of doing business motive of the government. However, the latest amendments have to some extent defeated the purpose for which the law was introduced in the economy.
Through an amendment the threshold limit of the amount in default for invoking insolvency proceedings by a financial or an operational creditor u/s 7 or 9 has been raised from ? 1,00,000/- to ? 1 crore but there has been no clarification on the fact that whether a single creditor has to comply with the revised threshold or the same can be complied by various operational creditors to a corporate debtor as in the case of the amendment concerning the home buyers i.e. “insolvency action can be initiated only if
10 percent or 100 homebuyers (whichever is lower) or debenture holders agree to the move”, because it is practically impossible for an individual to have an outstanding default of ? 1 Crore and many individuals would not fall under the ambit of the threshold but would have no option other than the alternative remedies available to them under various other laws practiced by civil and commercial courts which is much time consuming and expensive in comparison to the code.
Now a question arises that what would be the fate of a notice served upon a corporate debtor by an operational creditor u/s 8 of the code being a mandatory compliance in order to initiate proceedings u/s 9 of the code that too before the a national wide lockdown was announced followed by the amendments under the code? The answer to this lies in the past where an amendment concerning the home buyers was made and various National Company Law Tribunals considered the amendment to be retrospective in nature which not only affected the fresh applications which were to be filed before the tribunals but also had a negative impact on the applications already pending before them. Therefore, considering the incidents of the past it is believed that the Tribunals would have a similar view towards the recent amendments under the law.
In my opinion, amending the threshold limit in the Code is an undue hardship upon all the operational creditors who were in the process of initiating insolvency proceedings u/s 9 of the code. Further, the suspension of the code by the government in the name COVID-19 is a practical anecdote without considering its effect on the society at a macro level. Therefore, this may be an end of an era of one of the most landmark law ever introduced in the Indian Judiciary System which brought a sigh of relief amongst the small business owners and investors and became a nightmare for the corporate debtors who made a practice of delaying the payments of their creditors and managed to take benefits of the loopholes in the judicial system in India.
Qualification: Company Secretary Company: C Cube Advisors LLP Location: Delhi
Member Since: 21 Jun 2020 | Total Articles Contributed:3
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