The Government of India (GOI) announced a nationwide lock down on account of Covid-19 pandemic with effect from 25 March 2020. This has severely disrupted regular business activities across all sectors of the economy in the country. The quarterly newsletter issued by the Insolvency and Bankruptcy Board of India (IBBI) for the quarter October – December 2019, states that as on 31 December 2019, there are approximately 1,961 entities which were undergoing a corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (Code). It is in respect of the corporate debtors presently undergoing CIRP under the Code, that the lockdown has made it near impossible for all the stakeholders involved in the process, to participate effectively and perform their respective functions within the timelines as stipulated under the Code.
In light of the above, a series of amendments were introduced inter-alia to the Code and the regulations framed under the Code (Regulations), catching pace with the regulatory changes and relaxations introduced under different legislations across different sectors of the economy on account of the ongoing COVID-19 pandemic. In addition to the above mentioned policy changes, the quasi-judicial authorities, taking cognizance of the current state of affairs issued directions, particularly in relation to the computation of various timelines for undertaking different actions as prescribed under the Code and the regulations framed under the Code. These changes are detailed below:
Increase in the De Minimus Threshold for initiating CIRP
Exercising its powers under Section 4 of the Code, the GOI issued a notification on 24 March 2020 increasing the de-minimus amount for filing an application to initiate CIRP of a corporate debtor from INR 1 lakh to INR 1 Crore. The Ministry of Finance (MoF) also issued a press release on 24 March 2020 (Press Release) stating that the objective of this amendment is to curb the filing of CIRP applications against micro small and medium enterprises.
Amendment to the CIRP Regulations
On 29 March 2020, the IBBI vide the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2020 dated 29 March 2020, inserted a new regulation, Regulation 40C, to the Insolvency and Bankruptcy Board of India (Insolvency Resolution for Corporate Persons) Regulations, 2016 (CIRP Regulations) providing for the exclusion of the period of lockdown imposed by the Central Government in the wake of COVID-19 outbreak from computation of timelines for completion of activities under a CIRP, notwithstanding the timelines prescribed in the CIRP Regulations, but subject to the provisions set out in the Code. It is noteworthy, that Regulation 40C includes non-obstante language only in relation to the timelines prescribed under the CIRP Regulations and not in relation to the timelines prescribed under the Code, thereby ensuring that the provisions of the Regulations cannot be construed as overriding the provisions of the statute.
The timeline under Regulation 40B of the CIRP Regulations for filing various forms (which provide information about the life-cycle of a CIRP of a corporate debtor) by the insolvency professional/interim resolution professional/resolution professional (as the case may be) has been extended to 30 October 2020. The penalty to be levied for not filing these forms shall only trigger post 30 October 2020. The IBBI appears to have taken cognisance of the constraints being faced in the operating ecosystem while complying with procedural requirements under the Code and is taking measures by providing concessions to resolve these procedural issues.
Amendment to the Liquidation Regulations
The IBBI through the Insolvency and Bankruptcy Board of India (Liquidation Process) (Second Amendment) Regulations, 2020 (Liquidation Regulations) introduced Regulation 47A to the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. This provision is similar to Regulation 40C of the CIRP Regulations. Regulation 47A sets out that subject to the provisions of the Code the period of lockdown imposed by the Central Government in the wake of COVID-19, shall not be counted for the purposes of completion of tasks that could not be completed due to such lockdown, in relation to any liquidation process.
Suo Moto Action and Order issued by NCLAT
The Supreme Court of India (Supreme Court) on 23 March 2020 took suo moto cognizance of the hardships being faced by various persons and ordered that the period of limitation in all proceedings before all courts and tribunals in the country irrespective of the limitation prescribed under general law or special law, whether condonable or not, shall be extended with effect from 15 March 2020 till further order/s are passed by the Supreme Court to ensure that lawyers/litigants do not have to be physically present for filing petitions/applications/suits/appeals/any other proceedings.
Subsequently, on 30 March 2020, the National Company Law Appellate Tribunal (NCLAT) also took suo moto cognizance of the challenges being faced by various stake holders, and by exercising its powers under Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 read with its judgment in Quinn Logistics India Pvt. Ltd. v Mack Soft Tech Pvt. Ltd. in Company Appeal (AT) (Insolvency) No.185 of 2018, issued an order (NCLAT Order) stating as follows:
For all cases in which CIRP has been initiated and/or is pending before any bench of the national company law tribunal (NCLT) or in appeal before the NCLAT, the period of lockdown as ordered / extended in the area in which the registered office of the corporate debtor is, would be excluded for the purpose of determining the outer-limit of 330 (three hundred and thirty) days within which a CIRP is required to be completed as per Section 12 of the Code.
Any interim order/ stay order passed by the NCLAT under the Code would continue until the next date of hearing.
The NCLAT Order is unambiguous, in as much as it provides for a potential scenario of the lifting of the lockdown in a staggered manner by inclusion of a reference to the area in which the registered office of the corporate debtor is located. Therefore, the reliefs provided will continue to remain applicable in regions where the lockdown is applicable even if it is eased out in other regions.
Notices issued by NCLT
The NCLT has issued a series of notices in relation to the manner of functioning of the benches of NCLT in the wake of the Covid-19 pandemic. Although these notices do not provide concessions in relation to the activities required to be undertaken in terms of the Code, they have a direct bearing on the ongoing CIRP/liquidation processes.
The NCLT issued a notification dated 15 March 2020 in terms of which all benches of the NCLT were directed to only take up matters which require urgent hearing upon the requests made by the concerned parties till 27 March 2020. All other matters are to be simply adjourned. Further, the NCLT issued a notice dated 22 March 2020 (22 March Notice) closing all benches of the NCLT for judicial work until 14 April 2020. Any unavoidable urgent matters would be heard on Wednesday’s and Friday’s by an application through email to the registry, with prior notice to the other side. In addition, the 22 March Notice clarified that the approval of resolution plans and liquidation proceedings will not be construed as urgent matters and these matters will be taken up once the functioning of regular benches commences. With the extension of the lockdown beyond 14 April 2020, the NCLT, by a notice dated 14 April 2020, has extended the applicability of the 22 March Notice to 3 May 2020. Lastly, a notice dated 17 April 2020 issued by the NCLT (17 April Notice), provided that all the NCLTs will be taking up urgent matters for hearing by video conferencing with effect from 21 April 2020 as per the schedule set out in the 17 April Notice.
Amendment to the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2020 (IP Regulations)
As per Regulation 7(2)(ca) of the IP Regulations, an insolvency resolution professional (IP), who has obtained certificate of registration from the IBBI is required to pay to IBBI a fee calculated at the rate of 0.25% of the professional fee earned for the services rendered by the IP in the preceding financial year, on or before the 30 April of each year (Fee). The IBBI, by the Insolvency and Bankruptcy Board of India (Insolvency Professionals) (Amendment) Regulations, 2020 dated 20 April 2020 inserted a proviso into Regulation 7(2)(ca) of IP Regulations stipulating that for the financial year 2019-2020, an IP is required to pay the Fee before 30 June 2020.
As India’s efforts to contain the damage caused due to the Covid-19 pandemic continues, it is likely that there will be further amendments to the insolvency and bankruptcy regime in India. For instance, in the Press Release, the MoF observed that if the Covid-19 situation continues beyond 30 April 2020, then the GoI may take steps to suspend sections 7, 9 and 10 of the IBC for a period of 6 (six) months so as to stop companies at large from being forced into CIRP in such force majeure causes of default. Recent news reports also suggest that Indian banks are considering proposing to the GoI that insolvency proceedings in all pending cases be suspended for at least 2 (two) years, citing a sharp fall in valuations and lack of demand for companies under CIRP/liquidation.
It is evident that these reliefs have been granted to ensure that the rights of all the stakeholders in a CIRP/liquidation process are sufficiently protected during such unprecedented times and at the same time new cases of default are not pushed into insolvency as the cause of default could largely be on account of external factors not within the control of the borrowers in several cases. These steps are expected to aid and assist in the process of recommencement of business operations, support in their rehabilitation and overall business continuity till the time that normalcy is restored.
- Kumar Saurabh Singh, Partner, Aditi Bagri, Principal Associate, Richa Pathak, Senior Associate. Savni Tewari, Associate and Ashwij Ramaiah, Associate
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