Introduction
Insolvency and bankruptcy code, 2016 initially received the assent of the president on 28 May 2016, when it was drafted it had 255 sections and 11 schedules. But over the period of time changes have been made via the Insolvency and Bankruptcy Code (Amendment) ordinance, 2019 and now recently been revoked by the Insolvency and Bankruptcy Code (Amendment) Act, 2020. The IBC which came into force in 2016 has already been amended thrice. Let us see what this amendment is all about?
Salient Features
(a) Threshold of creditors: The bill amends the section 7 of the code inserting an explanation why the financial creditor who is allottee under a real estate project and financial creditor falling in the category of creditor referred under clause (a) and (b) subsection 6(a) of section 21 of may initiate the corporate insolvency resolution process against the corporate debtor. The application should be file by 10 % of such creditors or the 100 individuals amongst such creditors; whichever is less. But in the case monetary threshold that increased a lot earlier the threshold being; INR 1, 00,000 has now increased to INR 1, 00,00,000.
(b) No Termination of licenses, permits, registration, etc: The bill amends section 14 which deals with moratorium period. It states that the current licenses, permits, registration, etc. cannot be canceled just on the basis of insolvency. However it is should be ensure that there should no further default in payment in the current dues; to retain their licenses permits and registration.
(c) Continuous supply of critical goods: The code states that the creditor cannot stop the supplies of essential goods. Basically to preserve and protect the value of the financial debtor. However, if the debtor fails to pay the suppliers during the moratorium period. Or other specified circumstances the creditor can stop the supplies.
(d) Insertion of section 32A: The new section in the IBC states that the corporate debtor. It cannot be held liable for offenses committed prior to the insolvency procedures. The company will enjoy immunity from such offenses however; there should be a change in management or control of the corporate debtor as prescribed in section 32A. The bill also safeguards the property of corporate debtor from any kind of seizure or attachment.
(e) Appointment of interim resolution professional: This bill amends section 16 of the code; it states that the appointment of interim resolution professional has now changed from 14 days; from the inception of insolvency to the date when insolvency is declared.
Objective
It aims to provide protection to new owners of a loan defaulter company against the prosecution misdeeds of previous owners. The bill seeks to improve upon obstruction in the way of the insolvency resolution process and make it well organized.
Why was the Amendment introduced?
In a brief discussion in Lok Sabha when finance Minister Mrs. Nirmala Sitaraman was asked was there a need for amendment when the code has recently come into existence; to which she replied by stressing on the fact that the government now is very responsive. It has been talking to the industries and in the course of various meeting the ministry; It came up with a solution that the laws in place need to change as these laws require a fine-tuning.
So that loopholes in the laws should not cause harm to either of the parties. Moreover she also addressed and acknowledged the recent judgment of the Supreme Court. She said that the amendments are in sync with time and also adhere to the letter and spirit of the Supreme Court. She finished the issue by saying that companies are looking for revival; and not to be liquidate as that creates job opportunity and; revenue generation for the government. She assured all the members that the amendment is not unthinkingly.
Critical Analysis
The code has given the powers to the creditors that they can initiate an insolvency resolution if the company fails to make the payment in order to protect the company from incurring further losses and the company does not lead liquidation. In the case of real estate the rule of 10% or 100 individuals amongst the creditor is quite confusing and unclear. These creditors may or may not know the details of all such creditors.
Increasing the threshold from INR 1,00,000 to INR 1,00,00,000 was a decision take to avoid the chaos that will be create to the COVID-19 because many the vendors will not be able to pay their respective creditors the money back due to this pandemic as there is a complete lockdown. Even if this situation wouldn’t have come along the government was planning to increase the threshold amount to 50,00,000. As the earlier threshold was very low and many cases keep on piling in the tribunals in order to ease the workload on the tribunals the this decision was to be. This could prove detrimental for the operational creditors.
The provision to providing supplies to the corporate debtor is void and very weak because they are only concerned with the corporate debtor paying the current suppliers, it also says that insolvency resolution cannot be initiated if the necessary supplies are not being provided this provision seems really favored towards the debtor. Even though it is a bit tilt towards the debtor this law has keep the country’s economic growth in mind if the essential supplies are stop the company will soon go down and with the company. The jobs it created also will go down this provision helps the debtor to rise from the huge debts and build back the company again.
Reading the review and report of the Company Law committee report of November 2019, it reveal that the decriminalization of corporate debtor is for the procedural and technical offense enshrine in the very Act. However, after a month, the amendment was and section 32A was insert to the IBC giving hope in redeveloping business structure by acquiring the corporate Debtor through the Resolution process. However, a negative viewpoint can be that it may even lead to a frivolous filing of resolution by a corporate debtor for discharging him of its prior offense.
It was that it take the tribunal around 14 days to appoint the interim moratorium which could affect the corporate debtor affect the maximization of value. The committee took reasonable steps and change it to the date when insolvency is declare. This is a welcome step as it will preclude other creditors from filing applications against the companies. By this amendment their rights will not be impaire.
Conclusion
It is important to note that the code result in a behavioral change of many corporate debtors there have been many cases where the debtor settle with creditors to avoid the insolvency proceeding. The code over the years has created a number of advantages one of them being giving redressal to the problems of creditors and making clear guidelines onto how do they get their money back it can be through liquidation or by tribunal declaring moratorium because the creditors, in general, were facing a lot of problems in recovering their money back. After this amendment there are clear guidelines for both the debtor and the lender.
There is no doubt that this bill had come a change for good. But, there have been many amendments to this very new law government should not making amendments that often. Because it creates a ray of doubt in the minds of the people in the country.
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