IBC, 2016 is a legislation that amalgamated various insolvency and bankruptcy laws and clubbed it into a single code under an exclusive tribunal in order to facilitate speedy resolutions for corporate India. It is true for any piece of legislation irrespective of how exceptionally well deliberated its laws are, that periodic amendments are inevitable due the variability of our world. Corporate India has undergone systemic and consistent change since liberalization. The pace of this variability has augmented at an increasing rate, making it imperative for our laws to undergo changes. The Indian Parliament passed Insolvency And Bankruptcy Code (Amendment) Act as a result of this dynamism. It brought about substantial reforms to meet the requirements of the current scenario. Impediments were recognized and internalized through the legislation. No sooner did this legislation pass than the country was hit by a major catastrophe (COVID-19) that hit our capitalist world harder than it hit our health. The major players became vulnerable to economic losses and calculated predictions proved that this vulnerability could make them a victim of the current provisions of the IBC, 2016. Therefore, the government approved temporary amendments to the Code in order to prevent corporate organisations from facing the wrath of this code that could lead to their liquidation and in turn eliminate their very existence.
Insolvency and Bankruptcy Code, 2016 was legislated to serve the sole purpose of tackling the NPA crisis that anchored our banking system due to extremely slow-paced insolvency and liquidation laws. The purpose it is supposed to serve is
a)lubricate the bottlenecks;
b)Streamline Corporate Insolvency Resolution Process (CIRP).
The amendments applied to IBC,2016 in 2020 included an ordinance that was later enacted as a full-blown legislation through the Insolvency And Bankruptcy Code (Amendment) Actin March,2020.
Analysis of the Insolvency and Bankruptcy Code (Amendment) Act
The amendment called for omission of the clause 12 of section 5 in order to change the insolvency commencement date to the day when the application is filed for CIRP. The amendment of section 7 resulted in the insertion of 3 provisos. The first proviso allowed the financial creditors to file an application only if they have a class of at least 100 creditors or not less than 10% of the total number of creditors of the same class. Second proviso emphasizes on allottees under a real estate project with the same conditions as the aforementioned proviso. The third proviso has been inserted to remedy the issue of pending applications within 30 days of commencement of the act as a result of changes brought about as a consequence of this amendment. The amendment to section 11 internalized the issue of perpetual state of perplexity faced by the NCLT with regards to its very own interpretation. Subsequently sections 16, 21, 23, 29 A, 32, 227, 239 and 240 were amended in order to curb the growing number of futile cases that overburdened the tribunals and eliminated the foggy elements that brought about hurdles in the resolution or liquidation processes.
A major relief that was a gift in disguise through this legislation was incorporation of section 32 A in the given code. The additional amendment overpowered all provisions of the code and any law in force with respect to liability of a corporate debtor who didn’t operate at the time of the commission of an offence. The amendment ceased all liability of any corporate debtor who operated prior to the commencement of the Insolvency Resolution Process and could not be prosecuted for the same.
Changes in Light Of the Covid-19 Crisis
The pandemic compelled the Central Government to initiate a countrywide lockdown that paralyzed the economic activities throughout the country. This voluntary paralysis resulted in consistent and gradual disintegration of supply chain at retail levels. The economy was already heading towards an economic tailspin with the GDP numbers falling off a cliff.The demand crisis clubbed with a sensitive banking sector that suffered from a major NPA crisis when clubbed in together, made it imperative for the federal government to initiate temporary measures for the MSME sector that was majorly hit by these shockwaves. The government made temporary amendments in the insolvency and bankruptcy code to meet with an array of contingencies that arose as a result of the lockdown.
In light of the economic crunch that has hit the MSME sector at unprecedented levels, it was a reasonable assumption that they would default on their existing liabilities and the matter would be taken in large chunks to the NCLT for recovery. The government under section 4 of the IBC code increased the minimum threshold for filing an application to rupees one crore. This allowed us to conclusively state that unless the debtor defaults a minimum of Rupees one crore, the defaulter cannot be subject to Corporate Insolvency Resolution Process. The change gave rise to three fundamental situations in the current scenarios-
- Demand notice has been served – if the cumulative debt against n number of creditors does not amount to rupees one crore, then the application does not have any legal standing. If it amounts to one crore or more, then the applicant has the locus to initiate the application filing process.
- Application has been filed- If the application has been filed then a 30 days window has to be granted to make amendments to the filing that would be in conformity with the new provisions set in place.
- Application has been admitted- The applications that have been admitted shall not be withdrawn and therefore remain unequivocally accepted.
The financial creditors of the same class are still at liberty to combine forces and claim their dues if it amounts to one crore or more under section 7 of the code but operational creditors still have to comply with section 6 of the code where they are legally allowed to file an application individually.
The inherent trait on which the IBC functions is its prioritization of deadlines and the lockdown made it difficult if not impossible for Insolvency Professionals to discharge their duties in time bound manner. Therefore, it was important to make changes in the legal deadlines to avoid helpless penalties against innocent parties. The government extended the deadline on payment of membership for IP professionals to 30.6.2020. However, the government did not make any amends or grant relaxations on the liquidation process which also required considerable attention. The press release also stated that if the lockdown continued beyond the 30th of April then they would consider suspending sections 7,9 and 10 of IBC, 2016 as it deals with invoking certain rights of creditors to recover the defaulted amount from the debtor. The suspension of these sections was later implemented in the month of June,2020.
The IBC, 2016 has turned out to be an instrumental tool in fast tracking corporate insolvency cases and its exclusivity tends to protect it from the general trend of laws turning out to be a fait accompliwith time. The raison’detreof this code is inherent in its results and comparatively frictionless functioning. This piece of legislation like all other laws, requires consistent amendments due to the dynamic nature of the corporate world and unpredictable contingencies (like COVID-19) that make it worthy of considerable attention followed by regular troubleshooting of novel issues arising, as a result of such dynamism.