A Legal Round-Up of The Insolvency And Bankruptcy Code, 2016 (IBC)

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A Legal Round-Up of The Insolvency And Bankruptcy Code, 2016 (IBC)

Lex Witness Bureau | April 2020

The Insolvency and Bankruptcy Code, 2016 since its inception, has seen constant amendments, regulatory changes as well as active judicial interpretation to ensure the applicability of the Code in line with its object and purpose. The IBC interacts with and affects various stakeholders on a day-to-day basis operating across sectors. Dhir & Dhir Associates, a firm of high repute in the insolvency domain has encapsulated the critical legislative, regulatory as well as the judicial interpretation of the Code to provide a snapshot at a glance for all.

Statutory/Regulatory Updates

Amendment to Section 4 of IBC – Ministry of Corporate Affairs vide its notification No. S.O. 1205(E) dated 24.03.2020 amended Section 4 of the IBC and raised the threshold for invoking Corporate Insolvency Resolution Process under IBC to Rs. 1 Cr. from the previous threshold being Rs. 1 Lakh with a view to prevent triggering of such proceedings against small-medium enterprises that are facing the heat of Covid-19 pandemic currently. The suspension of Sections 7,9 and 10 of the IBC for a period of six months in light of Covid-19 is pending consideration before the Ministry as on date.
Insertion of Regulation 40(C) – The Insolvency and Bankruptcy Board of India (IBBI) in its press release clarified that it is difficult for the insolvency professionals to continue to conduct the process, for members of committee of creditors to attend the meetings, and for prospective resolution applicants to prepare and submit resolution plans, during the period of lockdown. Therefore, it may be difficult to complete various activities during a corporate insolvency resolution process within the timelines specified in Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) and accordingly, amended the CIRP Regulations and inserted Regulation 40(C) by virtue of which, 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.
w.e.f. 18.03.2020, the IBC has been made applicable to the whole of India including Jammu, Kashmir and Ladakh.
The Insolvency and Bankruptcy Code, Ordinance 2019 became an Act as on 13.03.2020. The changes brought in by the said amendment includes explanation to moratorium in as much for use of property or supplies received during the period of insolvency resolution process, the price is to be paid failing which the owner of the property or the supplier is free to terminate the usage. In addition, Section 32A has also been inserted which protects the Resolution Applicant who takes over a Company including criminal proceedings under PMLA etc. under an approved resolution plan from past offences as committed by the Company along with due protection to the assets/property belonging to the Company which cannot now be attached for any past offences.

Judicial Updates

Interpretation of Section 43 and 44 of IBC – The Hon’ble SC in the matter of ANUJ JAIN, INTERIM RESOLUTION PROFESSIONAL FOR JAYPEE INFRATECH LIMITED v. AXIS BANK LIMITED AND ORS., elaborated upon and explained the scope and applicability of Section 43 of the IBC while annulling the mortgages created in favour of lenders of the Holding Company being hit by the provisions of Section 43 of IBC. The Hon’ble Court has, while dealing with the expression “transfer made in the ordinary course of business” held that the expression “or”, appearing as disjunctive between the expressions “corporate debtor” and “transferee”, ought to be read as “and”; so as to be conjunctive of the two expressions i.e., “corporate debtor” and “transferee”.
Definition of the term “Financial Creditor” – The Hon’ble SC in the matter of Anuj Jain (Supra) also explained the meaning of the term “Financial Creditor”. The Hon’ble SC has held that the disbursement against consideration for time value of money is required to be satisfied by a creditor to be categorized as financial creditor. The description of the transactions as mentioned in clause (a) to (i) of Section 5(8) cannot be bereft of disbursement against consideration for time value of money.
Interpretation of Section 32A of IBC – The Hon’ble Delhi High Court in the matter of TATA STEEL BSL LIMITED & ANR. V. UNION OF INDIA & ANR., has held that it is clear from the language of Section 32(A)(1) of the IBC that a Corporate Debtor would not be liable for any offence committed prior to commencement of the CIRP and the corporate debtor cannot be prosecuted if a resolution plan has been approved by the Adjudicating Authority and accordingly, quashed the proceedings initiated by the SFIO against the Corporate Debtor.
Approved Resolution Plan is binding on all – The Hon’ble High Court of Rajasthan in the matter of ULTRATECH NATHDWARA CEMENT LTD. v. UNION OF INDIA & ORS., quashed the notices issued by the GST Department on the ground that Resolution Plan of Ultra Tech Nathdwara for the resolution of Binani Cement has been approved by the Adjudicating Authority and once the resolution plan is approved, the same is binding on all concerned. No right of audience is required to be given in the resolution proceedings to the operational creditors viz. the Central Govt. or the State Govt. as the case may be.
Approval of Resolution Plan not premised on being commensurate with the liquidation value – The Hon’ble SC in the matter of Maharashtra Seamless Limited vs. Padmanabhan Venkatesh & Ors. and SBI v Accord Life Spec Ltd. has held that there is no provision in the Code/ Regulations in terms of which it can be insisted the bid of any Resolution Applicant has to match liquidation value arrived at in the manner provided in Clause 35 of the IBBI (CIRP) Regulations, 2016. The approval of Resolution Plan is thus left upon the “commercial wisdom” of the Committee of Creditor.

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