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Is the bar on initiation of insolvency proceedings under Sec 10A IBC applicable even to pending cases?- NCLT answers

NCLT has held that Section 10A IBC, which came into force on June 5, shall apply even to pending cases in relation to defaults that have arisen on or after March 25.

Aditi Singh

The National Company Law Tribunal, Chennai Bench has held that the bar on initiation of insolvency proceedings under Section 10A of the Insolvency & Bankruptcy Code shall even apply to pending cases in relation to defaults that have arisen on or after March 25. (Siemens Gamesa Renewable Pvt Ltd vs Ramesh Kymal)

The date of filing cannot determine the rights of the parties in view of the prevalent extraordinary situation which will wholly defeat the object of the promulgation of the Ordinance in protecting the interest of the corporate persons.
NCLT has said.

The order was passed by a two-member Bench of R Varadharajan, Member (Judicial) and Anil Kumar B, Member (Technical).

The Case:

While proceedings under Section 9 IBC, at the behest of operational creditor Ramesh Kymal, were pending against the Corporate Debtor, Siemens Gamesa Renewable Pvt Ltd, on June 5, the Central Government promulgated Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 to suspend Sections 7, 9 and 10 of the Insolvency and Bankruptcy Code, 2016 on account of COVID-19.

In view of the insertion of Section 10A, the Corporate Debtor moved an application before the NCLT to dispose of the insolvency proceedings as the date of the alleged default was April 30.

New Section 10A IBC
New Section 10A IBC

The Operational Creditor sought to draw a distinction between the already filed insolvency petitions under IBC from the ones that are yet to be filed and argued that Section 10A was not applicable to pending proceedings.

It was also stated that as in the present case, if there was no financial distress arising out of COVID-19, the protection of Section 10A could not be claimed.

NCLT's Findings:

NCLT discussed at length the power of the Executive to promulgate an Ordinance and the emergent reasons to introduce the Ordinance at hand.

It observed,

“The Executive, as manifest from the Objects and reasons, seems to have also been concerned about proper suitors being available for resolution of insolvency of corporate persons if pushed into insolvency in relation to defaults, arising on or after 25th March 2020.. object of I&B Code is for the resolution of insolvency of corporate persons in a time bound manner by maximizing the value of the assets available with the Corporate Debtor by balancing the interest of all the stakeholders concerned, which may not happen; this seems to be apprehension of the Executive under the prevailing situation prompting it to exclude the default arising on or after 25.03.2020 as a ‘default’ itself giving rise to the filing of an application seeking initiation of the CIRP."

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

- The main provision opens with a non-obstante clause which overrides Section 7,9 and 10 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 apply to the defaults which had arisen in relation to a corporate debtor prior to the relevant date of March 25, 2020, and such creditors were thus not restrained from moving NCLT under IBC.

Noting that although the date of publication of the Ordinance was June 5, 2020,

“..the main provision of Section 10A taken together with the Explanation makes it clear that a ‘Lakshman Rekha’ so as to say, has been demarcated by providing the relevant date of 25.03.2020 in relation to a default and filing of an application for initiation of CIRP..”
NCLT noted.

In response to the question as to what would happen to those cases which had been filed between March 25, 2020 and June 5, 2020, the NCLT opined that to say that Section 10A would only apply to those applications which were filed after June 5, was untenable.

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.

“..the proviso to main provision of Section 10A makes it abundantly clear that the hands of the clock were not required to be temporarily frozen for a period of six months or such further period not exceeding one year but are required to be permanently interdicted..”
NCLT

The NCLT thus concluded that the Ordinance of June 5, 2020 was applicable retrospectively to the defaults arising on or after March 25, 2020.

Consequently, since the alleged default in the case at hand had arisen on April 30, the NCLT held that the instant case was hit under Section 10A.

The main insolvency plea was accordingly rejected.

The Corporate Debtor was represented by Senior Advocate Gopal Jain and Advocates Samudra Sarangi, Shruti Raina, Shrishti Khare and Law Offices of Panag & Babu.

Operational Creditor was represented by Senior Advocate Arvindh Pandian with Advocates Jeevanandham Rajagopal, S Aravindan, Varsha Raghavan & Fox Mandal & Associates.

Read the Order:

Section 10A- Siemens Gamesa Renewable Pvt Ltd vs Ramesh Kymal.pdf
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