The governments of most countries affected by the COVID-19 pandemic have already taken steps for mitigating the stress felt by small and other businesses. India is no exception. In a slew of reforms announced by the Indian Finance Minister, the threshold for initiating the corporate insolvency resolution process under the IBC has been increased from INR 100,000 to INR 10,000,000. The government is also understood to be considering an amendment to suspend Sections 7, 9 and 10 of the Code for at least six months.
The judiciary has also stepped in to provide relief to the litigants. While on one hand the Supreme Court has (in a suo motu proceeding), extended the limitation prescribed under the statue with effect from 15.03.2020 till further notice, the NCLAT has held that the period of lockdown (or extension thereof) would not be counted towards the timeline under Section 12 of the IBC. Moreover, the IBBI has also amended regulations for excluding the period of lockdown imposed by the central government in the wake of COVID-19 outbreak for the purposes of the time-line for any activity that could not be completed due to the lockdown, in relation to a corporate insolvency resolution process. This would, however, be subject to the overall time-limit provided in the Code.
Before the COVID-19 lockdown was implemented in India, the NCLT had approved the resolution plan for Jaypee Associates Limited – one of the large insolvency cases involving homebuyers. However, in other cases, there are concerns that the resolution process may take longer or that the number of potential bidders may come down in the wake of economic losses and a potential economic downturn.
From the Docket
In Tata Steel BSL Limited v. Union of India, the Delhi High Court held that in light of the plain language of Section 32A of the Insolvency and Bankruptcy Code, 2016 (“IBC” or “Code”) (as inserted in 2020) the corporate debtor would not be liable for any offence committed prior to the commencement of the corporate insolvency resolution process and would not be prosecuted if a resolution plan has been approved by the adjudicating authority. The High Court clarified however, that the prosecution of erstwhile promoters or others (who are liable under law) would not be affected.
In Corporation Bank v. SJN Energy Infrastructure, the NCLAT upheld an order of the NCLT whereby an application filed under Section 7 of the Code was rejected on the ground of limitation. The NCLAT held that Article 137 of the Limitation Act, 1963 was applicable to proceedings under Sections 7 and 9 of the IBC. It also held that the pendency of proceedings before the Debt Recovery Tribunal and other fora would not extend the limitation for filing of an application under the said provisions of the Code.
In the matter of D & I Taxcon Services v. Vinod Kumar Kothari, the NCLAT held that a tenant did not have locus standi under Section 47(1) of the Code to seek any direction against the liquidator as regards alleged undervalued sale transaction. The tenant had filed a claim of compensation against the corporate debtor, which was not settled till date. The NCLAT further held that such a claim does not make the tenant an operational creditor of the corporate debtor.
The NCLAT, in Punjab National Bank v. Vindhya Cereals , held that a financial creditor can proceed simultaneously under the SARFAESI Act and under the Code. In light of the same, the NCLAT – in this case – also held that merely because the financial creditor has filed parallel proceedings does not mean that the same has been done maliciously or fraudulently.
The Rajasthan High Court in Ultra Tech v. Union of India struck down various notices and demands raised by the GST department against a corporate debtor (whose resolution plan had been approved). The High Court noted that in light of the amendments to Section 31 of the Code in 2019 as well as some statements made by the Union Finance Minister in Parliament, the department should have taken a more pragmatic approach. This judgment re-emphasises the primacy of the Committee of Creditors and the amendments brought to Section 31 which make the resolution plan binding on the central and state governments as well.
Than you for reading! We will be back in your inbox next month with more updates from the world of insolvency and bankruptcy law.