IBC (AMENDMENT) ORDINANCE, 2020

By: Aayushi Mehta

No law or ordinance is mightier than understanding

-Plato

Insolvency and Bankruptcy Code, 2016 positions on the four pillars: Insolvency Professionals, Information Utility, Adjudication, and Regulation. Thereby, to provide protection to the corporate persons who are undergoing distress during the pandemic, the Ordinance 2020 has been conceded on 05.06.2020. Being a warm move, the principal object of the act is restructuring and insolvency resolution in a time-bound manner has not been abused in this scenario.

In other words, the Ordinance has been conceded to provide a sought of relief to the Corporate Debtors whose business have been directly pretentious due to the Covid-19 pandemic. Also, the ordinance takes judicial notice of the datum that during this period it would be problematic to find an adequate number of resolution applicants to rescue the corporate debtors who may be in default to discharge their debts.

Highpoints of the Ordinance, 2020

Due to the heath crisis faced by the nation,Article 123 of the Constitution had been placed at supremacy. This article vouchsafes the Hon’ble President the right to pass ordinances when either of the two Houses of Parliament are not in session.

  1. By virtue of this authority, the Hon’ble President has promulgated the IBC(Amendment) Ordinance,2020 and it has efficaciously suspended of the maneuver of Section 7, 9 and 10 of the code.
  2. These sections have been suspended with esteem to any default arising on or after 25.03.2020 for a period of six months. This period may be prolonged maximum upto a period of one year on notification.
  3. It is pertinent where the amount of default is more than Rs. 1 crore. The NCLT, Kolkata Bench in the matter of Foseco India Ltd. vs. Om Boseco Rail products Ltd.[1] has held that the increased threshold limit of Rs.1 crore under the Code does not apply retrospectively
  4. Apart from suspension, the Ordinance has led to the insertion of Section 10A which states that no proceedings can be initiated for any default on or before 25.03.2020. Also, the proviso to the same states that no application shall ever be filed for the default committed during the period of six months.
  5. Section 66(3)to the Insolvency and Bankruptcy Code, 2016. has been inserted in continuation to section 66 (2) which states that no application shall be filed by a resolution  professional under section 66(2), with respect to default in contradiction to which initiation of corporate insolvency resolution process is suspended as per section 10A.

Grey areas or challenges under the Ordinance:

As the Ordinance of 2020 seeks out to be beneficial for the corporate persons, it climaxes some grey areas or challenges in the long course:

  • The Ordinance is hushed on the MSME’s under section 240A. Thus, with the emergence of the latter and fruition of these Ordinances, the effectiveness of these measures in doing business would have to be perceived. The MSME’s though being channel to the Atma Nirbhar Bharat Abhiyan reforms.
  • As per the newly inserted Section 10A which states, “no application shall ever be filed”, elucidation with respect to the interpretation is expected.
  • Interpretational issues may arise in case of personal guarantors. As the Ordinances makes no bar of initiation of proceedings against personal guarantor to corporate debtors.
  • The Ordinance self-defeats the corporate debtors as it prevents filing and admission of voluntary insolvency applications. The only path left with the aggrieved debtors is winding up.
  • It also conquests the increased threshold till such Exemption Period continues. As per default before the passing of the Ordinance, 2020 the threshold is Rs. 1 lakh whereas on or after the passing of Ordinance is Rs. 1 crore.

The purpose for such an increase is to ease the infrastructural and capacity limitations around the NCLT. Also, this has been initiated to discourage the large applications filed for the initiation of CIRP.

The IBC (Amendment) Ordinance, 2020 needs clarification on its interpretation front, as on one hand it has suspended the filing of any proceedings for six months under section 7, 9 and 10 of the code but on the other pointer, it is asserting that the same will remain suspended in eternity. It clearly states that there is no clear interpretation attached.

As held by Supreme Court in J.K. Industries Ltd. v. Chief Inspector of Factories and Boilers[2], held that;

“35. Indeed, in some cases, a proviso, may be an exception to the main provision though it cannot be inconsistent with what is expressed in the main provision and if it is so, it would be ultra vires of the main provision and struck down. As a general rule in construing an enactment containing a proviso, it is proper to construe the provisions together without making either of them redundant or otiose. Even where the enacting part is clear, it is desirable to make an effort to give meaning to the proviso with a view to justify its necessity.”


[1]Foseco India Ltd. vs. Om Boseco Rail products Ltd.,(2020) C.P. (IB) No. 1735/KB/2019.

[2]J.K. Industries Ltd. v. Chief Inspector of Factories and Boilers,(1996) 6 SCC 665.

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