The Coronavirus has caused a global turmoil putting the economies of
several countries in a crisis. Desperate times call for desperate measures,
compelling the Finance Minister to take measures protecting the economy as best
as it can. One of the #quickmeasures taken by the #FinanceMinister is to
curtail small and medium enterprises going under due to pandemic. The Finance
Minister has, therefore, made changes in the Insolvency and Bankruptcy laws to #protectseveralbusinesses
from going into #bankruptcy.
The following are the changes initiated by the Finance Ministry:
1- The Government has recently raised the #threshold under Section 4 of the Insolvency and Bankruptcy Code, 2016 as amended thereof(IBC) for #invokinginsolvencyproceedings to Rs 1 Crore from the current Rs 1 Lakh limit, on 24.03.2020.
2- The Government is considering #suspendingtheprocessofinitiation of corporate insolvency resolution proceedings (CIRP) against corporate debtors, if the Corona Pandemic continues beyond 30.04.2020, under the following provisions of IBC, for a period of six months. This measure is probably being considered so as to stop companies at large from being forced into insolvency proceedings due to force majeure causes of default.
3- As part of the relief measures, the Finance Minister has also stated no additional fee will be charged for late filing during a moratorium period from 01.04.2020 to 30.09.2020. In respect of any documents to be filed in the Ministry of Corporate Affairs (MCA) Registry irrespective of its due date.
For the convenience of the readers, we have reproduced the Sections 7, 9, and 10 of IBC below:
Section 7- Initiation of corporate
insolvency resolution process by financial creditor
(1) A financial creditor either by
itself or jointly with other financial creditors, or any other person on behalf
of the financial creditor, as may be notified by the Central Government may
file an application for initiating corporate insolvency resolution process
against a corporate debtor before the Adjudicating Authority when a default has
occurred.
Provided that for the financial
creditors, referred to in clauses (a) and (b) of subsection (6A) of section 21,
an application for initiation corporate insolvency resolution process against
the corporate debtor shall be filed jointly by not less than one hundred of
such creditors in the same class or not less than ten per cent of the total
number of such creditors in the same class, whichever is less:
Provided further that for financial
creditors who are allottees under a real estate project, an application for
initiating corporate insolvency resolution process against the corporate debtor
shall be filed jointly by not less than one hundred of such allottees under the
same real estate project or not less than ten per cent of the total number of
such allottees under the same real estate project, whichever is less:
Provided also that where an application
for initiating the corporate insolvency resolution process against a corporate
debtor has been filed by a financial creditor referred to in the first or
second provisos and has not been admitted by the Adjudicating Authority before
the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2020,
such application shall be modified to comply with the requirements of the first
or second provisos as the case may be within thirty days of the commencement of
the said Act, failing which the application shall be deemed to be withdrawn
before its admission.
Explanation. – For the purposes of this
sub-section, a default includes a default in respect of a financial debt owed
not only to the applicant financial creditor but to any other financial
creditor of the corporate debtor.
(2) The financial creditor shall make an
application under sub-section (1) in such form and manner and accompanied with
such fee as may be prescribed.
(3) The financial creditor shall, along
with the application furnish –
(a) record of the
default recorded with the information utility or such other record or evidence
of default as may be specified;
(b) the name of the
resolution professional proposed to act as an interim resolution professional;
and
(c) any other
information as may be specified by the Board.
(4) The Adjudicating Authority shall,
within fourteen days of the receipt of the application under sub-section (2),
ascertain the existence of a default from the records of an information utility
or on the basis of other evidence furnished by the financial creditor under
sub-section (3):
Provided that if the Adjudicating
Authority has not ascertained the existence of default and passed an order
under sub-section (5) within such time, it shall record its reasons in writing
for the same.
(5) Where the Adjudicating Authority is
satisfied that –
(a)
a default has occurred and the application under sub-section (2) is complete,
and there is no disciplinary proceedings pending against the proposed
resolution professional, it may, by order, admit such application; or
(b)
default has not occurred or the application under sub-section (2) is incomplete
or any disciplinary proceeding is pending against the proposed resolution
professional, it may, by order, reject such application: Provided that the
Adjudicating Authority shall, before rejecting the application under clause (b)
of sub-section (5), give a notice to the applicant to rectify the defect in his
application within seven days of receipt of such notice from the Adjudicating
Authority.
(6) The corporate insolvency resolution
process shall commence from the date of admission of the application under
sub-section (5).
(7) The Adjudicating Authority shall
communicate-
(a)
the order under clause (a) of sub-section (5) to the financial creditor and the
corporate debtor;
(b)
the order under clause (b) of sub-section (5) to the financial creditor, within
seven days of admission or rejection of such application, as the case may be.
Section 9: Application for initiation of corporate insolvency resolution
process by operational creditor
(1) After the
expiry of the period of ten days from the date of delivery of the notice or
invoice demanding payment under sub-section (1) of section 8, if the
operational creditor does not receive payment from the corporate debtor or
notice of the dispute under subsection (2) of section 8, the operational
creditor may file an application before the Adjudicating Authority for
initiating a corporate insolvency resolution process.
(2) The application
under sub-section (1) shall be filed in such form and manner and accompanied
with such fee as may be prescribed.
(3) The operational
creditor shall, along with the application furnish-
(a) a copy of the invoice demanding payment or
demand notice delivered by the operational creditor to the corporate debtor;
(b) an affidavit to the effect that there is
no notice given by the corporate debtor relating to a dispute of the unpaid
operational debt;
(c) a copy of the certificate from the
financial institutions maintaining accounts of the operational creditor
confirming that there is no payment of an unpaid operational debt by the
corporate debtor, if available;
(d) a copy of any record with information
utility confirming that there is no payment of an unpaid operational debt by
the corporate debtor, if available; and
(e) any other proof confirming that there is
no payment of any unpaid operational debt by the corporate debtor or such other
information, as may be prescribed.
(4) An operational
creditor initiating a corporate insolvency resolution process under this
section, may propose a resolution professional to act as an interim resolution
professional.
(5) The
Adjudicating Authority shall, within fourteen days of the receipt of the
application under sub-section (2), by an order–
(i) admit the
application and communicate such decision to the operational creditor and the
corporate debtor if, –
(a) the application made under sub-section (2)
is complete;
(b) there is no payment of the unpaid
operational debt;
(c) the invoice or notice for payment to the
corporate debtor has been delivered by the operational creditor;
(d) no notice of dispute has been received by
the operational creditor or there is no record of dispute in the information
utility; and
(e) there is no disciplinary proceeding
pending against any resolution professional proposed under sub-section (4), if
any.
(ii) reject the
application and communicate such decision to the operational creditor and the
corporate debtor, if –
(a) the application made under sub-section (2)
is incomplete;
(b) there has been payment of the unpaid
operational debt;
(c) the creditor has not delivered the invoice
or notice for payment to the corporate debtor;
(d) notice of dispute has been received by the
operational creditor or there is a record of dispute in the information
utility; or
(e) any disciplinary proceeding is pending
against any proposed resolution professional:
Provided that
Adjudicating Authority, shall before rejecting an application under subclause
(a) of clause (ii) give a notice to the applicant to rectify the defect in his
application within seven days of the date of receipt of such notice from the
Adjudicating Authority.
(6) The corporate insolvency resolution process
shall commence from the date of admission of the application under sub-section
(5) of this section.
Section 10: Initiation of corporate
insolvency resolution process by corporate applicant
(1) Where a corporate debtor has committed a
default, a corporate applicant thereof may file an application for initiating
corporate insolvency resolution process with the Adjudicating Authority.
(2) The application under sub-section (1)
shall be filed in such form, containing such particulars and in such manner and
accompanied with such fee as may be prescribed.
(3) The corporate applicant shall, along with
the application, furnish-
(a) the information relating to its books of
account and such other documents for such period as may be specified;
(b) the information relating to the
resolution proposed to be appointed as an interim resolution professional; and
(c) the special resolution passed by
shareholders of the corporate debtor or the resolution passed by at least
three-fourth of the total number of partners of the corporate debtor, as the
case may be, approving filing of the application.
(4) The Adjudicating Authority shall, within
a period of fourteen days of the receipt of the application, by an order-
(a) admit the application, if it is complete
and no disciplinary proceeding is pending against the proposed resolution
professional; or
(b) reject the application, if it is incomplete
or any disciplinary proceeding is pending against the proposed resolution
professional:
Provided that Adjudicating Authority shall,
before rejecting an application, give a notice to the applicant to rectify the
defects in his application within seven days from the date of receipt of such
notice from the Adjudicating Authority.
(5) The
corporate insolvency resolution process shall commence from the date of
admission of the application under sub-section (4) of this section.
Sushila Ram Varma
Chief Legal Consultant
The Indian Lawyer