IBC ordinance imposes rigid timelines

On 9 July 2020, the Chennai bench of the National Company Law Tribunal (NCLT), in the matter of M/S Siemens Gemesa Renewable Power Pvt Ltd v Ramesh Kymal, held that the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020, passed on 5 June 2020, would have a retrospective applicability, subject to defaults arising on or after 25 March 2020 (the cut-off date) as provided in the ordinance.

The ordinance essentially suspends sections 7, 9 and 10 of the Insolvency and Bankruptcy Code, 2016. The retrospective applicability would allow petitions filed even before 5 June 2020 to be considered barred under the ordinance, if the default occurred on or after the cut-off date. Further, an explanation is attached to the provision that clarifies that the ordinance shall not apply to any default occurring before the cut-off date.

Earlier, the Bengaluru bench of the NCLT, in M/s India Asset Growth Fund v M/s CMRS Projects Private Ltd, stated that even though a default occurred prior to 25 March 2020, it would be appropriate for the financial creditor to take into account the current economic situation and consider the one-time settlement proposed by the other party, or else the insolvency proceedings would lead to a “civil death” of the distressed entity.

Both observations raise possible questions on the flexible structure of the ordinance with regard to its implementation on economically distressed entities due to the pandemic.