The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 suspends the applicability of Section 7, 9 and 10 of the Insolvency and Bankruptcy Code for 6 months to protect corporate entities defaulting on payment obligations during the Covid-19 pandemic.
Introduction
Introduction
Indian Banking sector is going through a hard time due to various reasons including but not limited to increase in Gross Non-Performing Assets (GNPA), loan frauds/corruption in some cases, economic slowdown etc. Rise in NPAs is major concern for banks as it reduces profit of banks and restricts the loan giving ability of the banks by way of provisioning. Reasons for the rise in NPA can be attributed to aggressive lending practice by the banks and willful default by borrowers i.e., lack of willingness to repay.
Introduction
Background
Ever since the Hon’ble Finance Minister of India announced the suspension of initiation of corporate insolvency under the Insolvency and Bankruptcy Code 2016 (IBC) in wake of the COVID-19 pandemic, there have been several market speculations about the nature and extent of the proposed suspension and its implications. With the promulgation of the amendment ordinance to IBC, most of these speculations have been put to rest, however owing to the language of the Ordinance, a new set of issues may have arisen.
In India, the Corporate Insolvency Resolution Process (hereinafter referred to as ‘CIRP’) is governed under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘Code’). Insolvency laws in India provides for an expeditious settlement of insolvency cases, protecting the interests of the creditors through a balanced procedure, in a time bound manner. A financial creditor, an operational creditor and the corporate debtor are eligible to initiate the CIRP.
Introduction
The Government of India announced that Sections 7, 9 and 10 of the Insolvency & Bankruptcy Code, 2016 shall continue to remain suspended for another three months i.e. till March 31, 2021 on account of the COVID -19 pandemic. Sections 7, 9 and 10 deal with the initiation of corporate insolvency proceedings by financial and operational creditors against corporate debtors.
The Supreme Court has held that transfer of winding up proceedings from High Court to NCLT on application of financial creditor not party to proceedings before Court is permissible.
Observing that the proceedings for winding up of a company are actually proceedings in rem to which the entire body of creditors is a party, the Court held that the words ‘party or parties’ appearing in 5th proviso to Section 434(1)(c) of the Companies Act, 2013 would take within its fold any creditor of the company in liquidation.
I. Delhi HC: If the original contract in entirety is put to an end, the arbitration clause, which is a part of it, also perishes along with it The Hon’ble High Court of Delhi (“DHC”) has in its judgement dated October 22, 2020 (“Judgement”) in the matter of Sanjiv Prakash v. Seema Kukreja and Others [ARB. Pet. 4/2020], held that if the contract is superseded by another, the arbitration clause, being a component/part of the earlier contract, falls with it.