The Insolvency and Bankruptcy Code (Second Amendment) Act, 2020
- On June 05, 2020, President of India promulgated Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 (Ordinance). This Ordinance now stands converted into an amendment act as on September 23, 2020 with President of India according his consent to Insolvency and Bankruptcy Code (Second Amendment) Act, 2020 passed by Parliament.
- The key features of the Amendment are as follows:
- It provides for insertion of Section 10A to Insolvency and Bankruptcy Code, 2016 (IBC) which lays down that no application for initiation of Corporate Insolvency Resolution Process (CIRP) shall be filed for any default arising on or after March 25, 2020 for a period of six months or for a further period of up to one year, as may be notified.
- The proviso to Section 10A provides that no application for initiation of CIRP can ever be filed for a default occurring during the above-mentioned period. Hence, in effect, such defaults have been excluded from the ambit of 'default' under Section 3(12) of IBC. Consequently, any default arising in or after March 25, 2020 would be exempted from the rigors of the IBC for a period of six months i.e. up to September 25, 2020. This period can be further extended up to one year.
- In addition to the above, the Amendment provides for insertion of Section 66(3) to IBC which provides for an absolute restraint on Resolution Professionals for filing applications pertaining to fraudulent trading or wrongful trading transactions in respect of such defaults against which initiation of CIRP is suspended as per Section 10A of IBC.
- Ordinance dated June 05, 2020 stands repealed and anything done or any action taken under the Ordinance would be deemed to have been done or taken under the Amendment itself.
Ministry of Corporate Affairs Notification dated September 24, 2020 for extension of the operation of Section 10A of the IBC
- Section 10A was introduced in IBC with effect from June 05, 2020 and provided for a suspension of operation of Sections 7, 9 and 10 of IBC, for any default arising on or after March 25, 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf.
- The above-mentioned period of six months was scheduled to end on September 25, 2020. Accordingly, Ministry of Corporate Affairs (MCA) vide a Gazette Notification dated September 24, 2020, extended the six-month long suspension of IBC provisions (Sections 7, 9 and 10) for another three months.
- The period has been extended primarily keeping in mind the resurrection of the economy which still needs time and impetus to get back on track. However, it is to be kept in mind that a mere suspension is just a temporary relief and would be futile if it is not complemented with schemes and policies to get the businesses back on track.
Amendment to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016
- Vide Notification dated September 24, 2020, Central Government through Ministry of Corporate Affairs (MCA) introduced amendments to Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (Rules), thereby providing 'electronic means' and 'by hand' as modes of serving a copy of the application (under Sections 7, 9 and 10 of the IBC) before filing it with the Adjudicating Authority. Additionally, now they also require the Applicant to serve a copy of the application to the Insolvency and Bankruptcy Board of India (IBBI) before filing it before the Adjudicating Authority.
- Further, at the end of Form 1, the declaration certificate has been amended to state that the Financial Creditor has paid the requisite fee and served a copy of the application by registered post/by speed post/by hand/by electronic means at the registered office of the Corporate Debtor and to IBBI. It has also created a requirement to attach Annex V comprising proofs of serving a copy of the application to the Corporate Debtor and IBBI. Similar amendments have been made to Forms 2, 5 and 6.
- Additionally, for the written communication by the proposed Interim Resolution Professional in Form 2, a disclosure of the assignments currently being handled is to be made. Lastly, a new addition after Form 5, i.e. Form 5A, has been inserted through this amendment under Section 9(3)(c) of the IBC, which is a list of the amounts credited to the account on behalf of the Corporate Debtor in the last three years, issued by a bank or a financial institution.
- These amendments have streamlined the rules and forms for filing applications before the Adjudicating Authority. The addition of electronic means of service is a welcome change in the present situation and eases the burden and other constraints of service by hand or by post. However, the implication of service of the application to the IBBI is yet to be seen and considering the workload which is predicted to increase significantly after completion of the period of suspension imposed by Section 10A of the IBC, such service may prove to be a futile exercise if the purpose of the same is solely to keep a general oversight over the proceedings under the IBC.
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