The Insolvency and Bankruptcy Code (Amendment) Ordinance,2019, promulgated on 28th December,2019.
The very objective of the said Amendment by way of an Ordinance is to consolidate and provide the following:
- to provide last mile funding to corporate debtor to prevent insolvency in case company goes into CIRP or liquidation,
- to provide immunity against prosecuting corporate debtor, and
- to prevent action against the property of corporate debtor or the successful resolution application subject to fulfilment of the conditions.
The Amendment Act has brought amendment, omission or addition in Sections 5(12), 5(15), 7, 11, 14, 16(1), 21(2), 23(1), 29A, 227, 239, 240. It also inserted a new Section 32A in the Code.
1) Proviso to Section 5(12) has been omitted and as a result IRP would be appointed on CIRP Commencement date. Such a date will be the date of admission of an application under IBC.
2) Scope of Interim Finance widened by Insertion of "and such other debts as may be notified" after Section 5 (15).
It is a welcome change to protect the real object and purport of IBC that a company should be tried to be kept as a going concern.
The RBI circular for Prudential Framework for Resolution of Stressed Assets dated June 7, 2019 also discussed on the treatment of such interim finance shall be as per the norms applicable to additional finance.
3) A new Explanation II is inserted under Section 11 of the Code. It will empower one Corporate Debtor to file an application against the other Corporate Debtor for an initiation of a CIRP for dues owed to the main Corporate Debtor.
Such an application can be filed by an IRP/ RP/ Liquidator/ Resolution Applicant/ Monitoring Agency, as the case may be.
This will enhance the maximisation of value of a corporate debtor as it is also another objective of CIRP.
It is pertinent to note that NCLT, Mumbai and NCLT, Delhi had taken two divergent views in Jai Ambe Enterprise v. S. N. Plumbings Pvt. Ltd in M.A 78/2018 in CP 1268/I&BC/NCLT/MB/MAH/2017 and Asian Plumbings and Mandhana Industries Ltd. v. Instyle Exports Pvt. Ltd.,- Company Petition No. IB-301(ND)/2018, respectively. Hence, such an explanation will put an end to long term debate on Section 11 of the Code.
1) An Explanation as inserted under Section 14 of the Code will extend the moratorium under IBC to protect the license, permit, registration, quota, concessions, clearances or other similar rights during the CIRP, unless there is default in payment while enjoying such rights as accrued thereunder.
The supply of goods and services will also continue to take place if IRP or RP considers it to be important for the corporate debtor. It has been provisioned with the sole intent of maintainability of a going concern.
Recently, Supreme Court had to deal with the said issue in Embassy Property Development Pvt. Ltd. v. State of Karnataka, Civil Appeal No. 9170 0f 2019, decided on 3rd December,2019.
Also, in Municipal Corporation of Greater Mumbai v. Abhilash Lal & Ors., Civil Appeal No. 6350 of 2019, decided on 15th November, 2019, the Court concluded with the well¬ known principle that there can be no estoppel against the express provisions of law.
2) Newly added sub-section (2A) under Section 14 empowers the IRP or RP to maintain the supply of critical goods or services and prevent termination of arrangements relating to such supply so as to protect the value of the corporate debtor.
The changes have been made again for keeping the thrust of going concern and to maximise the value of a corporate debtor.
ROLE OF A RP
The substitution in the Proviso of sub-section (1) of Section 23 of the Code clarifies that a RP shall manage the affairs of the corporate debtor till;
- the Resolution Plan is approved under sub-section (1) of Section 31 or,
- a liquidator is appointed under Section 34 by the adjudicating authority.
This will ease the working of a RP and they won't be required any further to file endless IA/MA during such period for suitable direction(s).
PRIOR TO CIRP
Liability of Corporate Debtor for offences committed prior to an initiation of CIRP and attachment of assets.
1) A newly inserted Section 32 A in the Code provides that the liability of Corporate Debtor for offences prior to an initiation of CIRP shall cease.
2) The Corporate Debtor shall not be prosecuted for it after the approval of a Resolution Plan.
3) This Section would be also applicable in cases where the prosecution starts during the CIRP.
4) No action can be taken against the property of a corporate debtor for an offence committed prior to an initiation of CIRP.
5) However, when an investigating authority requires assistance for the offence committed prior to initiation of CIRP such Corporate Debtor or any other person shall be bound to provide an assistance.
6) The Partner under a LLP or an officer as defined under Companies Act for having committed any default, if connected with such an offence, would continue to be liable for punishment irrespective of ceasing of liability of the Corporate Debtor.
FINANCIAL CREDITORS – WITH A CAP
1) The financial creditors of same class under clause (a) or (b) under sub-section (6A) of Section 7 can initiate insolvency but with a mandatory threshold limit.
2) The threshold limit for filing an application under IBC is a joint application by minimum of 100 allottees/ debenture or bond holders/ public depositors or 10% of such allottees/ debenture or bond holders/ public depositors, of same class, whichever is less.
3) Pending applications before the NCLT and which have not been admitted, will fall under the ambit of such mandatory threshold limit. However, a time period of 30 days has been granted to all such pending applications to comply with the said threshold limit.\
4) If such a requirement is not complied with in the stipulated period then all such applications would be deemed to be withdrawn.
5) With enforcement of this amendment, an individual allottee/ debenture or bond holder/ public depositor would not be able to bring a corporate debtor under the ambit of IBC which otherwise had occurred in some of the real estate developers.
FINANCIAL SERVICE PROVIDERS
The explanation inserted in Section 227 of the Code provides that the proceedings for insolvency and Liquidation for financial service providers or categories of financial service providers may be conducted with such modifications and in such manner as may be prescribed.
This content is purely an academic analysis under "Legal intelligence series".
© Copyright AMLEGALS.
Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement. This document is not intended to address the circumstances of any particular individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.