The Insolvency and Bankruptcy Code (Amendment) Act, 2020 was passed to ensure that new insolvency proceedings are not initiated for at least six months starting 25th March 2020 amid the COVID-19 Pandemic. It amends the 2016 Code on Insolvency and Bankruptcy. The Code offers a time-bound mechanism for the settlement of insolvency in firms and amongst persons. Insolvency is a case in which persons or firms are unable to repay their outstanding debt. The Bill seeks to temporarily suspend initiation of the corporate insolvency resolution process (CIRP) under the Code.
- In section 7(1) of the principal Act before the Explanation, the following provisos shall be inserted, "Provided that for the financial creditors, referred to in clauses (a) and (b) of sub-section (6A) of section 21, an application for initiating CIRP against the corporate debtor shall be filed jointly by not less than one hundred of such creditors in the same class or not less than ten per cent of the total number of such creditors in the same class, whichever is less.
- In section 11 of the principal Act, the legislature has inserted one more Explanation after the already existing Explanation which has been numbered Explanation I as Explanation II "For this section, it is hereby clarified that nothing in this section shall prevent a corporate debtor referred to in clauses (a) to (d) from initiating corporate insolvency resolution process (CIRP) against another corporate debtor."
- In section 14(1) of the principal Act, the following Explanation shall be inserted, "for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period."
- The Amendment Act has amended Section 16 of the Code as well, thereby providing in sub-section (1), for the words "within fourteen days from the insolvency commencement date", the words "on the insolvency commencement date" shall be substituted.
- In section 23 (1) of the principal Act, for the proviso, the following proviso shall be substituted, "Provided that the resolution professional shall continue to manage the operations of the corporate debtor after the expiry of the corporate insolvency resolution process period until the Adjudicating Authority passes an order approving the resolution plan under sub-section (1) of section 31 or appointing a liquidator under section 34."
- After section 32 of the principal Act, section 32A shall be inserted,
32A(1), provides that subject to fulfilment of requirements provided in this subsection, the Corporate Debtor shall stand discharged automatically from the date of approval of the resolution plan from any prosecution, which was initiated during the CIRP. The 'Explanation' to Section 32A (2) clarifies that an action in relation to property shall include attachment, seizure, detention or confiscation of such property. Furthermore, given that the provisions of Section 32A(2) do not prohibit the initiation of action against the assets of any other person who is neither a corporate debtor nor a person who has obtained the assets by means of a CIRP or liquidation procedure and who fulfils all of the conditions laid down in Section 32A.
The insolvency and Bankruptcy Code (amendment act), 2020 has been enacted to bring changes to the principal Act of 2016. The legislature by way of this amendment enables corporate debtors who are under insolvency to initiate CIRP against the corporate defaulters to recover their dues. It further provides for declaration of moratorium by the Adjudicating Authority during the pendency of CIRP. During the moratorium, there shall not be the termination of any licence, concession, permit, quota, clearance or any other similar right during the moratorium period, unless the Corporate Debtor does not default in necessary payment. By way of the amendment made in section 16, the insolvency commencement date is now the date of admission of an application for initiating CIRP. The amendments made provides for a minimum threshold for a certain class of financial creditors to enable them to maintain insolvency proceeding under the Code in respect of real estate allottees. In section 23 changes are made under the Act in which, CIRP shall continue to manage the affairs of a Corporate Debtor till the time the resolution plan is approved by the Adjudicating Authority or order for liquidation of Corporate Debtor is passed. It certainly resolves some practical difficulties being faced by resolution professionals as well as corporate debtors. It also provides for protection from prosecution granted to new management/ officials for offences committed before the commencement of CIRP and protection granted in respect of properties of Corporate Debtors from attachment/ seizure/ retention etc. for the offences committed before the commencement of CIRP.
The Code has been amended from time to time to remove various bottlenecks and practical difficulties being faced while implementing the provisions of the Code and has also attempted to streamline the Corporate Insolvency Resolution Process ("CIRP"). The enactment of the Amendment Act is a step forward towards the effective implementation of the Code and removing the hindrances in the way of its implementation.