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IBC Ordinance Promulgated by Centre on June 5 Will Have Retrospective Effect: NCLT [READ ORDER]

By Harshil Jain      14 July, 2020 01:02 PM      0 Comments
IBC Ordinance Promulgated by Centre on June 5 Will Have Retrospective Effect: NCLT [READ ORDER]

The Chennai branch of the National Company Law Tribunal (NCLT) has held that Section 10A of the Insolvency and Bankruptcy Code, 2016 (IBC) will apply to all the pending applications relating to defaults arising on or after 25 March 2020. Section 10A of the IBC, 2016 bars the initiation of insolvency proceedings against a defaulter.

It is also ‘untenable’ to rule that Section 10A would apply only to those cases that were filed after 5 June 2020 i.e. after the promulgation of the said ordinance, as it would be in contravention to the legislative intent and objective expressed therein, while promulgating the Code, by the Centre.

The tribunal held, “The date of filing cannot determine the rights of the parties in view of the prevalent extraordinary situation will wholly defeat the object of the promulgation of the Ordinance in protecting the interest of the corporate persons.”

The ruling was made in a case where insolvency proceedings under Section 9 of Insolvency and Bankruptcy Code, 2016 were pending against a Corporate Debtor as on 5 June 2020. On the said date, the Centre promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 that suspended Section 7, Section 9 and Section 10 of the Code. Also, considering the difficulties caused to companies during the lockdown, Section 10A was inserted in order to alleviate the same.

Subsequently, taking note of this, the Corporate Debtor filed a case in NCLT and sought that the proceedings against them should be disposed of, the date of their alleged default being 30 April 2020.

The matter was heard by a two-member bench of R Varadharaja, Member (Judicial) and Anil Kumar B, Member (Technical). The Bench mulled upon the question that Section 10A would apply to pending proceedings or not. In addition to this, it had to draw a clear distinction between insolvency petitions that were already filed and that were not filed yet.

The Bench held that “the main provision of Section 10a taken together with the Explanation makes it clear that a ‘Lakshaman Rekha’ so as to say, has been demarcated by providing the relevant date of 25.03.2020 in relation to default and filing of an application for initiation of CIRP.”

“The Executive, as manifests from the Objects and reasons, seems to have also been concerned about proper suitors being available for resolution of insolvency of Corporate persons if pushed into insolvency in relation to defaults, arising on or after 25 March 2020…,” it added, “…the object of I&B Code is for the resolution of insolvency of corporate persons in a time-bound manner by maximizing the value of the assets available with the Corporate Debtor by balancing the interest of all the stakeholders concerned, which may not happen; this seems to be the apprehension of the Executive under the prevailing situation prompting it to exclude the default arising on or after 25.03.2020 as a ‘default’ itself giving rise to the filing of an application seeking initiation of the CIRP.”

Considering the present case, the NCLT allowed the application under Section 10A. focusing on the proviso to Sec 10A, pending insolvency applications for defaults that occurred on after 25 March 2020 are excluded from the ambit of Sections 7, 9, and 10 of the Code, it added.

NCLT concluded that the Ordinance passed on 5 June 2020 will apply retrospectively i.e. it will cover defaults that occurred on or after 25 March 2020.



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