The Covid-19 pandemic is having an overwhelming impact on global order. These are testing times for nations. For India and for most other countries, the outbreak presents twin challenges, not only containing the virus spread, but also limiting the economic impact in an already slowing economy.
Threshold enhanced with force majeure awaited in Insolvency & Bankruptcy Code(IBC) due to COVID-19
In order to check the economical slowdown in the business, the Finance Minister on 24th March,2020 has announced various reliefs and relaxations in IBC due to the pandemic outburst of Covid-19 as below:
With more than three lakh confirmed cases and 14 thousand deaths across 190 countries, the Coronavirus disease (COVID-19) pandemic has caused (and continues to cause) unprecedented disruptions in the global political, social and economic environment. India has not remained untouched from this. With almost 500 confirmed cases and the country in lock-down mode to prevent further outbreak, social and economic activities have come to a grinding halt.
Insolvency and Bankruptcy Code, 2016 brought in a substantial financial discipline among Indian Companies. Prior to the said Code, taking advantage of delay in litigations due to high pendency of cases in the courts, companies were always dragging the payments. The above said Code mandated that if a company is not able to make the payment within 10 days from the date of receipt of a demand notice from the creditor, it is treated as default. Hence, the creditor can approach National Company Law Tribunal (NCLT) seeking to initiate insolvency proceedings against the defaulter.
Impact of COVID 19 Outbreak on Courts
In terms of the number of registered Covid-19 data across the world, India lies at the bottom of the list. However, in the last few weeks, India has witnessed a rapid increase in the number of confirmed coronavirus cases. As a result, there lies a possibility that India might witness a severe outbreak of this pandemic disease within a short period of time if its spread is left unchecked.
On March 24, 2020, the Finance Minister announced several relief measures across sectors, relating to Statutory and Regulatory compliance matters, in view of the COVID-19 outbreak in the country. The main relief measures have been detailed below, along with their implications for businesses.
Prelude
India and the United Arab Emirates (‘UAE’) have witnessed dynamic bilateral relations in the recent past. Leadership of both countries have endeavoured to bolster ties of the two economies which has aligned India to achieve its insatiable ambition of emerging as a USD 5 trillion economy.
Key Highlights
I. Supreme Court: Scope of intervention by High Courts in cases of orders passed by the National Company Law Tribunal
II. Supreme Court: State legislature cannot enact law which affects the jurisdiction of the Supreme Court
III. Supreme Court: Difference between inadequacy of reasons in arbitral award and unintelligible awards
IV. NCLT: RP can take possession of a corporate debtor's assets which are subject matter of litigation to facilitate the corporate insolvency resolution process
THE ISSUE
In a recent judgment, i.e., on 17 January 2020, the Indian appellate insolvency tribunal, namely, the National Company Law Appellate Tribunal (NCLAT) held in M. Ravindranath Reddy v. G. Kishan, that the lease of immovable property cannot be considered as supply of goods or rendering any services and therefore the due amount cannot fall within the definition of operational debt under the Insolvency and Bankruptcy Code, 2016 (Code).
Key Points:
No provision in the Code or insolvency regulations dictates that the bid of any Resolution Applicant has to match liquidation value of the estate of the Corporate Debtor. If the resolution plan has been approved by the Committee of Creditors by application of their commercial sense, as well as the plan has been considered as proper in terms of Section 30 of the Code, the Adjudicating Authority cannot interfere or re-assess the same under Section 31 of the said Code.