SUSPENSION OF SECTION 7, 9 AND 10 OF IBC
The Ministry of Finance on 24th March 2020 had increased the threshold limit for initiation of insolvency proceedings under the Insolvency and Bankruptcy Code, 2016(‘IBC’) from 1 lakh to 1 crore , and also proposed that in case the current lockdown due to the COVID-19 pandemic extends beyond 30th April 2020, the provisions to initiate proceedings under IBC shall be suspended for a period of six months. In pursuance to the same, the Union Government on 22nd April 2020, has approved the proposal from the Ministry of Corporate Affairs towards the suspension of Sections 7, 9 and 10 of IBC, 2016.
Section 7: Initiation of Insolvency Proceeding by Financial Creditor.
Section 9: Initiation of Insolvency Proceeding by Operational Creditor.
Section 10: Initiation of Insolvency Proceeding by Defaulting Company.
The relevant pointers are as follows:
- Introduction of Section 10A under the IBC, to suspend sections 7, 9 and 10 for a period of six months or until further notifications.
- The validity of the Section 10A shall not extend beyond 1 year1.
- An Economic Relief package is most likely to be expected from the Government. This is most likely to include certain benefits to the MSME entities2.
The approval from the President of India is yet to be sought. As per the inclusion of this latest provision, no new matters shall be initiated in the NCLT’s, as this is a step taken to ensure that the future economy is not hit due to the huge influx of matters due to the negative economic impacts caused by the COVID-19 pandemic. We may await further official notification/ordinance