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Centre suspends fresh IBC proceedings till Dec
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SME Times News Bureau | 24 Sep, 2020
In a major relief for stressed companies amid the pandemic woes, the
Centre on Thursday announced the suspension of fresh insolvency
proceedings under the Insolvency and Bankruptcy Code (IBC) by three more
months till December.
In a gazette notification, the Ministry of
Corporate Affairs (MCA) said that the suspension on operation of
Section 7, 9 and 10 of the IBC has been extended.
"In exercise of
the powers conferred by section 10A of the Insolvency and Bankruptcy
Code, 2016, the Central Government has extended the suspension of
sections 7,9, 10 of the IBC for a further period of three months," the
Minister of Finance and Corporate Affairs, Nirmala Sitharaman said in a
tweet.A
She said that the decision reinforces the government's commitment to protecting businesses.
"It also gives companies breathing time to recover from financial stress," she said.
In
June, the Union Cabinet approved the suspension, which came into effect
from March 25 and was brought in through the ordinance route.
Section
7 of the IBC allows initiation of corporate insolvency resolution
process by financial creditor, while Section 9 allows operational
creditors to file application for initiation of insolvency process by
operational creditor.
Further, a corporate debtor who has
committed a default, can file for initiation of a corporate insolvency
resolution process under Section 10 of IBC.
Although the decision
to extend the suspension has brought much-needed relief for business
stressed in the midst of the pandemic, sector experts, however, have
raised concerns regarding the financial stress it may create once the
suspension is revoked.
Sumit Batra, Partner at India Law
Alliance, said: "Another extension of three months beyond 25.09.2020 for
initiation of bankruptcy against defaulting corporate entities will
further aggravate the situation and lead to an unprecedented rise in
fresh filing once the suspension is revoked."
Noting that while
the logic of suspension for not being able to initiate proceedings under
Section 7 and 9 of IBC, seems justified to an extent that lockdown
triggered due to widespread outbreak of Covid-19 affected the paying
capacity of the corporate debtors, but "why such a suspension is being
imposed for applications under section 10 seems illogical".
The
intent and extent of section 10 petition is to enable the corporate
debtor to initiate insolvency against themselves in order to resolve the
financial stress in a time-bound manner, Batra said, adding that,
therefore, Section 10 petitions should have been excluded from being
covered under this suspension.
In a recent debate in the
Parliament, Finance Minister Nirmala Sitharaman had defended the
decision to suspend Section 10 saying that in view of the economic
situation, the companies filing for bankruptcy would not have achieved
high valuations and bidding amounts would have been low, thereby not
achieving the desired goal.
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