Objective of this article is to trace out the implication of covid-19 on provision of Insolvency and Bankruptcy Code, 2016 (hereinafter referred as IBC). Further, this article aims to explore provisions of IBC. The question could arise that whether certain amendments and restrictions makes the provision strict or liberal for financial and operational creditors and its impact on corporate. Failure to provide relief to operational and financial creditors will affect the country growth and development.

IBC offers a legal structure for business, partnership and individual insolvency resolution in a time limit manner to optimize the value of these individuals assets and balances stakeholder interest.

Before the IBC there was not a single law which deals with Insolvency and Bankruptcy, but this code combine other insolvency laws to bring them under one umbrella.

Snapshot Of Code

The code defines time bound insolvency resolution process which is to be completed within 180 days after the process is initiated plus a 90 days extension for resolving insolvency after applying to adjudicating authority if resolution is passed at committee of creditors by sixty six percent of voting shares. Also the process should be completed within 330 days from the commencement including any extension given in section 12 of IBC which is 90 days.

The code also provides fast track procedure which is to be completed within 90 days after commencement which provides 45 days extension. The bodies under IBC is NCLT for corporate persons and DRT for individuals and partnership firm.

No civil court or authority have jurisdiction to entertain any suit or proceedings in respect of any matter in which NCLT and DRT have jurisdiction.

The financial creditors either by themselves or jointly with other financial creditors may file an application for initiating process before adjudicating authority when a default is occurred.[i] But the operational creditors have to satisfy that it had served the notice and same has not been disputed by the corporate debtor.

The Hon'ble Supreme Court in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd[ii] while interpreting the term 'dispute' as defined under IBC held that the adjudicating authority is only required to see if there is a bona fide dispute in existence and it is not allowed to examine the merits of such dispute. Therefore, if a debt is not admitted by the Corporate Debtor and is disputed, it is a sufficient ground to reject the insolvency application made by an Operational Creditor.

Implication Of Amendment In Threshold Limit

As per the notification given by central government on 24th March, 2020, the threshold limit of default for the applicability of IBC raised from Rs 1 Lakh to Rs 1 Crore due to Covid-19 outbreak.[iii] The said revision was done to minimize the pressure on small company and MSME and not to take them under insolvency and bankruptcy process.

The said notification will give effect only to applications filed after 24th March, 2020 not before that as the notification is prospective not retrospective. To be a retrospective there should be implication in the amendment but in the given notification it is silent so it will be prospective in nature. Also the said notification will not affect any pending application filed before NCLT.
The applicability when demand notice is served but application is not filed in that scenario demand notice will not be meant good if limit of Rs 1 Crore is not satisfied. It means demand notice will only be served only when the limit of Rs 1 Crore is satisfied.

In case of application is admitted before the change of limit, the application will remain unaffected.

For the applicability of the Act, the application should have been file by financial creditor or with any other financial creditor. The default will be considered wholly not individually if filed with other financial creditors.

But it is opposite in the case of operational creditor, as operational creditor will have to meet this criteria individually not with other operational creditor. This clause regarding operational creditor can be in conflict with the amendment as it is very difficult for them individually to cross the threshold limit. This effect the interest of operational creditor. The operational creditor is always on weak footing in case of application filed by them in NCLT because of waterfall arrangement.

The main focus of government to bring this amendment in the threshold limit was to support small sized companies and MSME and to minimize their pressure as they are already in economic distress. But on the flip side this will adversely impact the ability of operational creditors to initiate Corporate insolvency resolution process (hereinafter referred as CIRP) since the minimum limit for them is increased 10 times of previous limit.

Relaxation In Timelines Of CIRP

As per the notification dated 29th March, 2020, Insolvency and Bankruptcy Board inserted regulation 40C to exclude the period of lockdown for the purpose of calculating timelines under the CIRP. [iv] The notification could not be published in official gazette due to nationwide lockdown declared by central government in the wake of Covid-19. The amended regulation was published on the website of the board for it to be effective from 29th March, 2020. The said notification was published in the official gazette on 20th April, 2020.

The notification will not affect the total CIRP period which is 330 days including extension of 90 days. The timelines which is provided for the activity during CIRP for Interim resolution professional/ resolution profession, 1st meeting of creditors, public announcement by Insolvency resolution professional has been given relaxation, as the success of the code stands on these timelines. This does not mean that overall period of process will also be increased, that will remain unaffected.

This also clarifies that if due to Covid-19 the activity which are given relaxation to exclude the period of lockdown, after the lockdown these process should be carried on rapid basis as to complete the process within overall time period.

Relaxation In Timelines Of Liquidation Process

As per the notification dated 17th April, 2020 Insolvency and Bankruptcy Board inserted regulation 47A to exclude the period of lockdown for the purpose of calculating timelines under the liquidation process.[v] The said notification could not be published in official gazette due to nationwide lockdown declared by central government in the wake of Covid-19.

The notification provides relaxation to liquidator to exclude the entire time period of lockdown during Covid-19 from all the timelines provided under liquidation process. The activity for which relaxation is provided is public announcement for liquidation, appointment of valuer, submission of claim, verification of claim, submission of reports.

The notification will not affect the overall time period which is 12 months from the date of commencement, only the certain activity during liquidation process will be provided relaxation.

This move was taken so that NCLT is not flooded with procedural application, seeking extension and filing condonation of delay in meeting timelines. After the removal of lockdown it will be necessary for liquidator to rapid up with the process so that it get completed within overall time period.

Conclusion
The relaxation has been provided in provision of IBC is to prevent and absorb the effect of huge loss to corporate. It is also an acknowledged for the active business environment which has been changing every second in the wake of globally spread pandemic, the central government responded by giving certain relaxations, extension and amendment in the framework.

These relaxations were necessary in the framework as supply chains has been disrupted, valuation of stocks decreased and valuation of business have fallen steeply. Also the government should reduce the limit of Sec.4, so that IBC do not become toothless tool in the hands of operational creditor.

End-Notes:

1. Insolvency and Bankruptcy code, 2016, s. 7
2. MANU/SC/1196/2017
3. S.O. 1205(E). MINISTRY OF CORPORATE AFFAIRS, available at https://www.ibbi.gov.in (last visited on 5th April, 2020)
4. No. IBBI/2020-21/GN/REG059. INSOLVENCY AND BANKRUPTCY BOARD OF INDIA, available at https://www.ibbi.gov.in (last visited on 5th April, 2020)
5. No. IBBI/2020-21/GN/REG060. INSOLVENCY AND BANKRUPTCY BOARD OF INDIA, available at https://www.ibbi.gov.in (last visited on 5th April, 2020)