IBC Ordinance – A Bargain for both Debtors and Creditors


Status as on 06/06/2020

The Union Finance Minister on 17th May 2020 announced that debts incurred during the COVID-19 lockdown shall not be treated as default under the IBC for triggering insolvency. The Ordinance as part of the Atma Nirbhar Bharat Abhiyan reforms to that effect is here and brings a major change in the insolvency regime of India. 


The Insolvency and Bankruptcy Code, 2016 was enacted with the objective to ensure maximization of asset value. However, as the nationwide lockdown adversely impacted the Indian economy. The Union government was forced to bring about several reforms to ensure the viability of business units. Thus, the Union Finance Minister Smt. Nirmala Sitharaman in the backdrop of Atma Nirbhar Bharat Abhiyan announced several reforms. The announcement of 17th May, 2020 promised a change in the insolvency regime of India to safeguard the interest of corporate persons who are experiencing distress on account of this unprecedented situation. Therefore, finally on 5th June, 2020 the government promulgated an Ordinance to bring about the changes in the Insolvency and Bankruptcy Code, 2016. 

Amendments to the Insolvency and Bankruptcy Code, 2016

The Ordinance titled – The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 inserts a new Section 10A. Section 10A is a Non-Obstante Clause and declares that no application under Section 7, 9 and 10 can be filed for Corporate Insolvency Resolution Process against a corporate debtor for any default occurred on and after 25th March, 2020. The proviso to Section 10A declares that – ‘no application shall ever be filed for initiation of Corporate Insolvency Resolution Process for the said period of default’. The Explanation to Section 10A further provides that Section 10A shall not apply to defaults occurred before 25th March, 2020.

Implication of the Ordinance

The Ordinance thus makes two things clear. Firstly, no application for initiation of CIRP can be filed for defaults on and after 25th March, 2020 for a period of six months or for up to 1 year. Secondly, and most importantly no suspension of Sections 7, 9 and 10 for defaults ‘before’ March 25, 2020. However, a certain ambiguity that is arising from the Ordinance is with regard to the fact that no application can ever be filed for defaults on or after 25th March, 2020. Thus, it brings us to the issue whether, even after the expiry of the said period – if the default remains to be a continuing one – a creditor will be precluded from filing an application seeking initiation of CIRP regardless of the Corporate Debtor having recovered. Further proviso to Section 10A imposes a restriction even over filing of application for default occurred during the said period. As barring the applicant from filing will raise unnecessary hue and cry over the situation because NCLT is best suited to determine the admissibility in the light of Section 10A. 


The rationale of the Ordinance is certainly to ensure that Insolvency and Bankruptcy Code, 2016 lives up to its preamble that is – maximization of value of assets. The newly inserted Section 10A certainly brings about a balance of interest between creditors and debtors. It in simpler words is a bargain for both the Creditors and Debtors. However, it remains to be seen the approach of NCLT and NCLAT in regards to these ambiguities. Also, it is necessary to consider that if the government doesn’t decide to make these changes permanent the issue with regard to ‘no application can ever be filed for defaults on or after 25th March, 2020’ will vanish away on its own. Therefore, the Ordinance dated 5th June, 2020 will vanish away with Covid-19 and an uplift in the economy. 

Disclaimer – The above article is based on interpretation of the related judicial pronouncement and related laws which may differ person to person. The readers are expected to take expert opinion before placing reliance on it. For more information, please reach us at support@centrik.in or call us at 8383011629

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