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
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
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
No civil court or authority have jurisdiction to entertain any suit or
proceedings in respect of any matter in which NCLT and DRT have
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.
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.
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.
- Insolvency and Bankruptcy code, 2016, s. 7
- S.O. 1205(E). MINISTRY OF CORPORATE AFFAIRS, available at https://www.ibbi.gov.in
(last visited on 5th April, 2020)
- No. IBBI/2020-21/GN/REG059. INSOLVENCY AND BANKRUPTCY BOARD OF
INDIA, available at https://www.ibbi.gov.in (last visited on 5th April,
- No. IBBI/2020-21/GN/REG060. INSOLVENCY AND BANKRUPTCY BOARD OF
INDIA, available at https://www.ibbi.gov.in (last visited on 5th April,