In a very surprising way, the Central Government notified the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 to suspend Sections 7, 9 and 10 of the Insolvency and Bankruptcy Code, 2016 due to the ongoing pandemic. Further this Ordinance added a new section 10A which stated that no new insolvency proceedings could be initiated for any defaults arising on or after 25th March, 2020 for a period of six months or more but not exceeding one year.
The Madras High Court on 9th July, 2020 has sought the Central Government’s response to a PIL which was filed in the High Court challenging the ban on filing petitions under section 7, 9 and 10 of IBC. Section 7 of the IBC talks about initiation of corporate insolvency resolution process by financial creditor while Section 10 of the IBC talks about initiation of corporate insolvency resolution process by corporate applicant. These are the provisions of IBC through which all insolvency petitions are filed before the National Company Law Tribunal (NCLT). The new section was section 10A which stated that no new insolvency proceedings could be initiated for any defaults arising on or after 25th March, 2020 for a period of six months or more but not exceeding one year. The PIL challenges the validity of the newly added provision arguing that the new provision is contrary to the IBC. The Petitioner further argues that it seems like the Government is encouraging the defaulters by introducing such an Ordinance and in a way takes away the rights of litigants of approaching the NCLT.
The Petitioner further argued that there should never be a complete ban on filing of petitions under sections 7, 9 and 10 of the IBC. A similar plea challenging this Ordinance is pending before the Madhya Pradesh High Court. It would be very interesting to see what the Government says in response to this PIL and what the Madras High Court decides.
