IBC Amendment Ordinance, 2020
IBC Amendment Ordinance, 2020
Litigation News

There cannot be a complete ban on filing of petitions under Sections 7, Section 9 of IBC: PIL in Madras High Court against June 5 Ordinance

"This is like the government is encouraging the defaulters... by such a notification/ ordinance, the right of litigants approaching the IBC is taken away thereby encouraging the defaulters", states the plea.

Meera Emmanuel

The Madras High Court has sought the Centre's response on a PIL challenging the "ban on filing of a petition under section 7 and section 9 under the IBC" brought about by the IBC ordinance of June 5, 2020, in view of the COVID-19 pandemic (Gagan Bothra v. The Central government and ors).

The Bench of Chief Justice AP Sahi and Justice Senthilkumar Ramamoorthy has reportedly sought the Government's response in the matter.

The plea points out that Sections 7 (Initiation of corporate insolvency resolution process by financial creditor) and Section 10 (Initiation of corporate insolvency resolution process by corporate applicant) of the Insolvency and Bankruptcy Code, 2016 are the provisions through which insolvency petitions are filed before the National Company Law Tribunal (NCLT).

Following the COVID-19 pandemic outbreak, the Government issued an ordinance on June 5 (ordinance number 9 of 2020) whereby Section 10A was introduced into the IBC to suspend the initiation of the corporate insolvency resolution process during the period of the pandemic.

The newly inserted Section 10A states that no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed for any default arising on or after 25th March 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf.

The proviso to Section 10A states "Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period.

The PIL petitioner has now challenged the validity of this proviso arguing that a plain reading of the same would show that the proviso is totally contrary to the IBC.

"This is like the government is encouraging the defaulters... by such a notification/ ordinance, the right of litigants approaching the IBC is taken away thereby encouraging the defaulters", states the plea.

The petitioner contends that there cannot be a complete ban on filing of a petition under Section 7 and Section 9 under the IBC by such ordinance.

A plea challenging the ordinance is also pending before the Madhya Pradesh High Court.

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