The National Company Law Tribunal, Chennai Bench vide order dated 09.07.2020 held that the bar on initiation of insolvency proceedings under Section 10A of the Bankruptcy Code (Amendment) Ordinance 2020  shall even apply to pending cases in relation to defaults that have arisen on or after 25.03.2020.

The said order was passed in response to an application filed by a Corporate Debtor provoked by the promulgation of Insolvency and Bankruptcy Code (Amendment) Ordinance 2020 on 05.06.2020, wherein the newly inserted Section 10 A barred the initiation of any Corporate Insolvency Process by a Corporate Debtor for any default occurring on or after 25.03.2020. The main petition was filed under Section 9 of the Insolvency and Bankruptcy Code 2016, by the Operational Creditor (Respondent in the present Application).

As per the statement filed on 11.05.2020 by the Operational Creditor in Form 5 claiming Rs. 104.11 Crores/- against the Corporate Debtor in the main petition, the date of the alleged default was 30.04.2020. The Hon’ble tribunal thus disposed off the main petition since the default was after 25.03.2020, and hence it couldn’t be initiated as per Section 10A of the Bankruptcy Code (Amendment) Ordinance 2020.

The Respondent sought to draw a distinction between the already filed insolvency petitions under Insolvency and Bankruptcy Code 2016 from the ones that are yet to be filed and argued that Section 10A of the Insolvency and Bankruptcy Code (Amendment) Ordinance 2020 was not applicable to pending proceedings.

The Respondent also contended that in case of no financial distress arising out of COVID-19, protection under Sec 10A of the said code could not be claimed by the Applicant.

After considering the contentions put forward by both the parties, R Varadharajan, Member (Judicial Member) and Anil Kumar B (Technical Member) held that the provision which opens with a non-obstante clause, overrides Sec 7, 9 and 10 of the said Code initially for a period of 6 months that could be extended further beyond March 25, 2021.

Analyzing the bare text of Section 10A, the NCLT noted:

  • The main provision opens with a non-obstante clausewhich overrides Section 7, 9 and 10 of the said Code for initially a period of six months with a saving for a further extension of a period beyond Match 25, 2021.
  • Provisions of Section 10A did not applyto the defaults which had arisen in relation to a corporate debtor prior to the relevant date of 25.03.2020, and such creditors were thus not restrained from moving NCLT under the Insolvency and Bankruptcy Code 2016.

Confining the applicability of the Section 10A to only those applications which are filed after June 5, 2020 is contrary to the legislative intent and object expressed of its promulgation, NCLT said.

Further, laying emphasis on the term ever as contained in the proviso to Section 10A, the NCLT added the pending application filed in relation to defaults which have occurred on or after March 25 have been removed from the ambit of Sections 7, 9 and 10 IBC.

Concluding that the said Ordinance was retrospective in nature and due to the default of the Applicant arising on 30.04.2020, i.e. after the mentioned date of 25.03.2020, the main petition was hit under Section 10A of the said Ordinance.

The present application was thereby allowed while the main petition was rejected on the above-mentioned grounds.

Order:IA 395-2020-min