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Impact Of Covid-19 Pandemic On The Model Timeline Of Insolvency Resolution And Liquidation Proceedings

Insolvency and Bankruptcy Code, 2016 has been enacted with an objective to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons in a time bound manner for maximisation of value of assets of such corporate entities.

Considering the difficulties faced in completing the reorganisation and insolvency resolution of corporate persons in a time bound manner due to lack of any clarity on the time required to be devoted by the resolution professional on any particular process forming part of entire reorganisation process of corporate persons; the IBBI Vide Notification dated 03.07.2018 provided model time-line for corporate insolvency resolution process by inserting Regulation 40A in Insolvency Resolution Regulation, 2016.

Similarly for providing time required to be devoted by the Liquidator on any particular process forming part of the liquidation process of corporate persons, the IBBI Vide Notification dated 25.07.2019 provided model time-line for liquidation process by inserting Regulation 47 in Liquidation Process Regulation, 2016.

That in view of spread of COVID-19, National Disaster Management Authority in exercise of power under Section 6(2)(i) of the Disaster Management Act, 2005 imposed a nationwide lockdown for 21 days on 24th March 2020 so as to prevent the spread of Covid-19 in the country. The lockdown was extended on 14th April 2020, 1st May 2020 and finally on 17th May 2020. From 01st June 2020 onwards the lockdown has been imposed in containment zones only.

The imposition of lockdown brought the entire process of Corporate Insolvency Resolution as well as liquidation to standstill. To meet the timeline as provided under model time-line under Regulation 40A of Insolvency Resolution Regulation, 2016 and 47 of Liquidation Process Regulation, 2016 became impossible. Section 12 of the Code provides that Corporate Insolvency Resolution Process shall be completed in 180 days.

The 2nd Proviso to Section 12 mandates that Corporate Insolvency Resolution Process shall be completed with 330 days from the insolvency commencement date which includes extended period as well time taken in legal proceedings.

The Code doesn't provide for extension of Corporate Insolvency Resolution Process on account of any pandemic beyond 330 days and at the same time there is no provision in the Code for exclusion of period on the ground of pandemic in calculating the days spent in Corporate Insolvency Resolution Process. To fill up this lacuna, the IBBI and NCLT has proactively taken steps to face the extraordinary created by Covid-19. We are hereinafter analysing such steps.

Relaxation In Computation Of The Timeline For Completion Of Insolvency Resolution Process

The IBBI on 29.03.2020 notified the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2020 which provides for exclusion of period of lockdown imposed by the Central Government in the wake of COVID19 outbreak from the time-line for any activity in relation to a corporate insolvency resolution process provided in Regulation 40 A of Insolvency Resolution Regulation, 2016. The notification clearly stipulates that the amendment shall come into force on 29th March 2020 itself.

Regulation 40 C reads as under:

40C. Special provision relating to time-line.
Notwithstanding the time-lines contained in these regulations, but subject to the provisions in the Code, the period of lockdown imposed by the Central Government in the wake of COVID- 19 outbreak shall not be counted for the purposes of the time-line for any activity that could not be completed due to such lockdown, in relation to a corporate insolvency resolution process.

In the meantime, after taking cognizance of the unprecedented situation arising out of spread of COVID-19 virus and hardships being faced by various stakeholders, Hon'ble NCLAT on 30.03.2020, in Suo Moto Company Appeal (AT) (Insolvency) No. 01 of 2020 passed following Order:
That the period of lockdown ordered by the Central Government and the State Governments including the period as may be extended either in whole or part of the country, where the registered office of the Corporate Debtor may be located, shall be excluded for the purpose of counting of the period for 'Resolution Process under Section 12 of the Insolvency and Bankruptcy Code, 2016, in all cases where Corporate Insolvency Resolution Process has been initiated and pending before any Bench of the National Company Law Tribunal or in Appeal before this Appellate Tribunal.

It is apparent that notification dated 29.03.2020 issued by IBBI was not brought into the notice of Hon'ble NCLT resulting into benefit of exclusion of period of lockdown in calculation of model time-line under the Insolvency Resolution Regulation, 2016 was given to only those corporate debtors whose offices are situated within the area where lockdown is in force vide order dated 30.03.2020.

However, initially such minor contradiction in IBBI Notification and NCLT order dated 30.03.2020 doesn't had any impact as the entire nation was under lockdown but after 31.05.2020 when the classification of Containment zones and Green zones came into force and lockdown restrictions were relaxed outside containment zones, the confusion started in extending such benefit to those corporate debtors whose offices are situated outside the containment zones.

As per Disaster Management Act, 2005, the areas outside containment zones are not under lockdown and as per IBBI Notification dated 29.03.2020 as well as NCLT order dated 30.03.2020, such Corporate Debtors can't claim the exclusion of period after 31.05.2020 from the model timeline provided under Regulation 40A of Insolvency Resolution Regulation, 2016.

The 2nd Contradiction between the IBBI Notification dated 29.03.2020 and Hon'ble NCLT order dated 30.03.2020 subsist w.r.t. calculation of total days which can be qualified for exclusion. As per IBBI Notification, the lockdown period can be calculated from 29.03.2020 to 31.05.2020 only whereas as per NCLT order dated 30.03.2020, the entire lockdown period i.e. from 24.03.2020 to 31.05.2020 is liable to be excluded while calculating the number of days taken in completion of any activity in relation to a Corporate Insolvency Resolution Process.

Relaxation In Computation Of The Timeline For Completion Of Liquidation Process

Surprisingly, both IBBI as well as NCLT, initially failed to consider the impact of lockdown in completion of liquidation process in view of specific model timeline provided for such purpose under Regulation 47 of the Liquidation Process Regulation, 2016.

Somehow, on 17th April 2020, the IBBI has realised the difficulties faced by Liquidators in completing the task in prescribed model timeline, thus, vide notification dated 17th April 2020 inserted Regulation 47A which provides as under:

47A. Exclusion of period of lockdown

Subject to the provisions of the Code, the period of lockdown imposed by the Central Government in the wake of COVID-19 outbreak shall not be counted for the purposes of computation of the time-line for any task that could not be completed due to such lockdown, in relation to any liquidation process.

The said notification created confusion as to the implementation date as notification provided that it shall come into force on 17th April 2020. IBBI published the notification dated 20.04.2020 inserting Regulation 47A with an explanatory memorandum which is as under:
The Governing Board of the Insolvency and Bankruptcy Board of India decided on 17th April, 2020 to amend the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.

The notification amending the regulations could not be published in the Gazette of India, due to the nationwide lockdown declared by the Central Government w.e.f. 25th March, 2020, in the wake of the outbreak of Covid-19. The amendment regulations were, therefore, published on the website of the Board for it to be effective from the 17th April, 2020, with a note that the same shall be published in the Gazette of India as soon as the Government Press accepts the notification for publication.

The intention of the Governing Board was to bring into force the amended regulations with effect from the 17th April, 2020. It is certified that, since the amended regulations provide clarity to the stakeholders in regard to the model time-line in the completion of various tasks in the liquidation process, no person is being adversely affected by giving retrospective effect

The IBBI while giving such explanation, overlooked that period of lockdown from 24th March 2020 till 16th April 2020 will not get excluded in calculating the time in completing any task in the liquidation process and denial of benefit for such period is without any reason and such denial of relaxation appeared only because of the ignorance on the part of IBBI. Regulation 47A of the Liquidation Process Regulation, 2016 could have been published on the same day along with regulation 40 C of Insolvency Resolution Regulation, 2016.

The aforesaid order and notifications are providing for the exclusion of period of lockdown only while calculating the timeline in completion of any task in relation to Corporate Insolvency Resolution Process or Liquidation Process. Whether the period after 31.05.2020 outside the containment zone is covered under aforesaid order and notifications became an issue of debate among the professionals in view of the contradictions and ambiguity in the notifications.

The aforesaid issue has been considered by NCLT, Chandigarh Bench in CP (IB) No.30/Chd/Pb/2017 titled as FM Hammerle Textiles Limited (Corporate Debtor). In its order dated 11.05.2020 passed on an application moved by Successful Resolution Applicant, who approached the NCLT seeking exclusion of complete lockdown period while calculating the due date of payments.

The NCLT, Chandigarh Bench after taking note of Orders dated 23.03.2020 passed by Hon'ble Supreme Court in Suo Motu Writ Petition (Civil) No(s).3/2020 in Re: cognizance for extension of Limitation, Order dated 30.03.2020 passed by NCLT Principal Bench and notifications issued by IBBI defined the entire lockdown period as under:
…the entire lockdown period i.e. from the date of imposition of lockdown by the Government of India till the reopening of National Company Law Tribunal, Chandigarh Bench, on regular basis, after removal of the lockdown, be excluded….

Conclusion
In view of the aforesaid, lockdown period as defined by NCLT, Chandigarh bench covers the period of entire lockdown i.e. from the date of imposition of 1st Lockdown till the NCLT bench reopens on regular basis. Thus, the period from 1st day of imposition of lockdown till concerned NCLT bench resumes its normal functioning, will be excluded in calculating the time in completing any task in the CIRP and liquidation process. The period may differ for various benches as different benches may resume their normal functioning on different dates.

The start of economic activities outside containment zone will have no impact on such proceedings as now the end of lockdown period has a correlation with the reopening of respective NCLT benches for their normal functioning.

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