The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 was notified by the Central Government. The ordinance suspends the operation of Section 7, 9, 10 of the Insolvency and Bankruptcy Code (IBC), 2016 by adding Section 10A and accordingly amends Section 66 of the said Act.
The newly added Section 10A lays down that no new insolvency proceedings can be initiated for a default made on or after March 25, 2020 for a period of six months which can be further extended but not more than a year. Also, sub-section 3 to Section 66 has been amended clarifying that no resolution professional should file any application in order to initiate the Corporate Insolvency Resolution Process (CIRP) for a default made under suspended sections of the Act.
The step was taken in line with the announcement made by the Union Finance Minister, Nirmala Sitharaman that debts arising out of hardship caused by COVID-19 pandemic shall not be considered as default under the IBC. At the same time in the view of the crunching economy and precarious condition of Banks due to rising NPAs (Non-Performing Assets), the government decided to put a cap of 12 months on such suspension. This is bound to bring some relief to the debtors and restlessness to the creditors including Banks.
By: Shubham Kumar Singh