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The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019 (hereinafter referred to as the ‘Bill’) has been introduced in the Parliament to resolve and clarify certain issues which have arisen and to further strengthen the framework of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the ‘Code’). The present article does not seek to analyse the scope and impact of the proposed amendments in detail but aims to encapsulate the major changes proposed to the Code. The various proposed changes have been categorized into the following categories:
Insolvency commencement date and date of appointment if Interim Resolution Professional
Proviso to clause 12 of section 5 of the Code is proposed to be deleted by Section 2 of the Bill. The proviso stipulated that where the interim resolution professional (hereinafter referred to as the ‘IRP’) is not appointed in the order admitting application under section 7, 9 or section 10, the insolvency commencement date would be the date on which such IRP is appointed by the Adjudicating Authority. Thereby, the bill proposes that the insolvency commencement date must, in all cases, be the date on which the order admitting the application for initiation of corporate insolvency resolution process (hereinafter referred to as the ‘CIRP’) is passed. In line with the aforesaid, Section 6 of the Bill seeks to amend Section 16 of the Code to the effect that the Adjudicating Authority shall appoint the IRP on the insolvency commencement date.
Minimum threshold for certain classes of Financial Creditors
Section 3 of the Bill proposes certain minimum thresholds for filing of applications seeking initiation of CIRP by certain classes of creditors. The financial creditors referred to in Clause a or b of sub-section 6A of Section 21 of the Code i.e. where the financial debt is in the form of securities or deposits and the terms of the financial debt provide for appointment of a trustee or agent to act as authorised representative for
all the financial creditors or where the financial debt is owed to a class of creditors exceeding the number as may be specified, other than the creditors covered under clause (a) or sub-section (6) of Section 21 of the Code; are only allowed to file an application seeking initiation of CIRP if the application is filed jointly by not less than one hundred of such creditors in the same class or not less than ten percent of the total number of such creditors in the same class, whichever is less.
Similarly, for financial creditors who are allottees under a real estate
project, an application for initiating CIRP will have to be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten percent of the total number of such allottees under the same real estate project, whichever is less.
Effect on Pending Proceedings
In a significant move, these threshold limits are proposed to be applied on pending applications seeking initiation of CIRP by the aforesaid classes of creditors which have not been admitted by the Adjudicating Authority before the commencement of the Insolvency and Bankruptcy
Code (Second Amendment) Act, 2019 (hereinafter referred to as the ‘Amendment Act’). In such cases, the application shall have to be modified to comply with the requirements as stipulated in the preceding paragraph within thirty days of the commencement of the Amendment Act, failing which the application will be deemed to be withdrawn before its admission. The imposition of such a deadline should see real estate allottees pressing for disposal of their cases before the Amendment Act commences whereas the developers are likely to attempt the opposite. The retrospective imposition of such additional conditions on such classes of creditors is likely to be tested in the courts.
Clarification with regard to corporate debtors which are not entitled to initiate CIRP
Section 4 of the Bill adds an explanation to Section 11 clarifying that the corporate debtor hit by any of the disqualifications in clauses a to d of Section 11 shall not be prevented from initiating CIRP against another corporate debtor.
Status of certain rights granted to Corporate Debtor during the Moratorium Period
Section 5 of the Bill proposes to add an explanation to Section 14 (1) of the Code clarifying that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, will not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of such rights during the moratorium period.
Provision of Critical Goods and Services during Moratorium Period
Section 5 of the Bill also seeks to add Section 2A to Section 14 of the Code. Section 2A seeks to empower the IRP or Resolution Professional (hereinafter referred to as the ‘RP’) to determine which supply of goods and services are critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern and the section further provides that such supply of goods and services shall not be terminated, suspended or interrupted during the period of moratorium, except if such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified.
Extension of Resolution Professional’s Role after Expiry of CIRP
Section 8 of the Bill seeks to amend Section 23 of the Code to ensure the RP continues to manage the affairs of the corporate debtor after expiry of CIRP period until an order approving the resolution plan under sub-section (1) of section 31 or appointing a liquidator under section 34 is passed by the Adjudicating Authority.
Liability of Corporate Debtor for offence committed prior to the commencement of the CIRP
Section 10 of the bill seeks to introduce Section 32A to the Code which will provide immunity from prosecution to the corporate debtor for any offence committed prior to the commencement of the CIRP from the date, the resolution plan is approved by the Adjudicating Authority. However, such immunity shall only apply if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not a promoter or in the management or control of the corporate debtor or a related party of such a person; or a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or court. Subject to the aforesaid conditions, if a prosecution had been instituted during the CIRP against such corporate debtor, it shall stand discharged from the date of approval of the resolution plan.
However, the persons in the management of the corporate debtor who are in any manner in charge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who were directly or indirectly involved in the commission of such offence as per the report submitted or complaint filed by the investigating authority, shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor.
Similarly, no action such as seizure, attachment etc. of the property of the corporate debtor in relation to an offence committed prior to the commencement of the CIRP of the corporate debtor, shall be taken where such property is covered under a resolution plan approved by the Adjudicating Authority, which results in the change in control of the corporate debtor to a person, or sale of liquidation assets under the provisions of Chapter III of Part II of this Code to a person who was not in the management of the Corporate Debtor or who has not abetted or conspired in the offence as stated in the preceding paragraph.
Notwithstanding the above, the corporate debtor will still have to provide assistance and co-operation to any authority investigating an offence committed prior to the initiation of CIRP.
Swaroop George is an advocate practicing at New Delhi
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