IBC Amendment Ordinances, 2021, A Boon or Bane In Respect of the Fate of MSME.
When we observe the Indian Legal system, we can easily find laws and regulations for almost every aspect, whether it is civil disputes, criminal disputes or any industrial disputes and one such law that deals with insolvency associated matters of individuals, enterprises, or corporates is the Insolvency and Bankruptcy Code, 2016.
The Insolvency and Bankruptcy Code aims to produce a quicker and a lot of value-efficient outcome for stressed MSMEs; the govt has introduced a pre-packaged resolution method for such enterprises by amending the Insolvency law. An Ordinance was introduced to amend the Insolvency and Bankruptcy Code (IBC) on April 4, 2021.
In this article, we will discuss the new Insolvency and Bankruptcy Code amendments and ordinances as per the notification by the Government.
Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code, 2016 (IBC) refers thereto law governing the bankruptcy in India that is instrumental to the consolidation of the pre- existing framework concerning the Insolvency Law as well as bankruptcy by the virtue of creation of a single law. The bankruptcy code is a general solution for settling insolvencies which previously was a long-tedious process that did not provide an economically viable arrangement.
The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021
The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021 has recently been asserted by the President, which seeks to amend the Insolvency and Bankruptcy Code, 2016 for the Micro, Small and Medium benefit Enterprises (MSMEs). The Ordinance has been brought to provide the MSMEs with an alternative method of insolvency resolution, which is a powerful, cost-effective and time-bound process to ensure minimal suffering to the MSMEs, many of which are about to collapse due to the impact of COVID-19.
The new Ordinance of 2021 introduces pre-packaged deals for the insolvency resolution process, brought through Chapter-III A in the Act. In this type of resolution process, there is a deviation from the regular CIRP proceeding in as much as the time and resources invested in the normal CIRP proceedings are reduced by introducing this concept. In this process, a resolution plan is suggested by the borrower. It is submitted directly to the creditor rather than being first taken to court. In this process, a pre-planned offer is put before the creditor to come to the settlement. Until the process is completed, the company’s control is not taken away from the borrower or the actual owner as opposed to the normal CIRP Proceedings.
Here, accepting the pre-packaged deal helps the company resolve insolvency without auctioning, and a systematic yet quick resolution is arrived at. The focal point in this regard is also the time frame provided through the introduction of Section 54D, where it is mentioned that the completion of the pre-packaged insolvency resolution takes place within 120 days from the commencement days. This reduces the stipulated time for completion of such a process substantially. Also, Section 54H includes that even when such resolution process is taken place, the management of the Corporate Debtor entity shall be in the hands of the BoD or the partners and hence the people who are obligated and responsible for re-flourishing of the entity are the ones who shall be holding the reigns throughout. These are a few essential provisions that entail the objective which the amendment aims to achieve.
In simple words, the process has been cut off to ensure that the Small Enterprises do not suffer more at the hands of its creditors who shall break upon them as soon as the Insolvency Proceedings, which were suspended earlier, reinitiates.
Insolvency and Bankruptcy Recent Judgements
In this case, the SC held that the NCLT has the jurisdiction under S.60(5)(c) of the code to adjudicate as insolvency cost the monetary claim of a professional appointed by the Resolution Professional during the CIRP even after the CIRP is set aside. The Supreme Court also observed that the NCLT’s jurisdiction is incongruous as compared to the jurisdiction of the Insolvency and Bankruptcy Board of India(‘IBBI’) to penalize errant conduct of an RP under a complaint under S. 217 of the Code.
In this case it was held by the Apex Court that under Section 7 of the IBC a particular application is maintainable against a corporate debtor in respect of a loan even wherein the principal borrower isn’t a corporate personality & the debt so owned in such a situation would be under the ambit of the Section 5(8) of the IBC i.e. a financial debt. The Supreme Court also observed that the status of a guarantor, being a corporate person, metamorphoses into that of the corporate debtor, upon the principal borrower has defaulted in the payment of its debt. The Supreme Court further held that the limitation period for applying S.7 of the Code should be computed afresh from the date of acknowledgement of the debt by the principal borrower occasionally, as also by the corporate guarantor.
The IBC ordinances, 2021, provided a great relief to all the stressed MSMEs during the COVID-19 Pandemic. The Ordinance has been brought to provide the MSMEs with an alternative method of insolvency resolution, which is a powerful, cost-effective and time-bound process to ensure minimal suffering to the MSMEs, many of which are about to collapse due to the of COVID-19. The latest Ordinance is welcomed by a lot of stressed Micro, Small and Medium Enterprises (MSMEs).
Law Student, Bharati Vidyapeeth University, New Law College, Pune