- Posted by Arpit Marwah
- On January 9, 2020
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- The ordinance amends the Insolvency and Bankruptcy Code, 2016 and effaces certain ambiguities therein.
- The ordinance primarily provides immunity against the prosecution of the corporate debtor in certain circumstances and fills critical gaps in the corporate insolvency framework.
- The President, in exercise of the powers conferred by clause (1) of Article 123 of the Constitution has promulgated the pertinent Ordinance.
Object of the Ordinance:
- A need was felt to give the highest priority in repayment to last mile funding to corporate debtors to prevent insolvency in case the company goes into the corporate insolvency resolution process or liquidation;
- To provide immunity against the prosecution of the corporate debtor and to prevent action against the property of such corporate debtor;
- For successful resolution applicant subject to fulfilment of certain conditions.
Salient features of the Ordinance:
- Short title and commencement – The ordinance shall be called the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019 and it shall come into force at once i.e. December 28th 2019.
- Amendment of section 7 – The following provisos have been inserted in Section 7, sub-section (1) before the Explanation:
- Provided that for the financial creditors, referred to in clauses (a) and (b) of sub-section (6A) of section 21, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such creditors in the same class OR not less than ten percent of the total number of such creditors in the same class, (whichever is less).
- Provided further that for financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than hundred of such allottees under the same real estate project or not less than ten percent of the total number of such allottees under the same real estate project (whichever is less)
- Provided also that where an application for initiating the corporate insolvency resolution process against a corporate debtor has been filed by a financial creditor(referred to in the first or second proviso) and the same has not been admitted by the Adjudicating Authority before the commencement of this Ordinance, such application shall be modified to comply with the requirements of the first and second provisos, within 30 days of the commencement of the Ordinance, failing which the application shall be deemed to be withdrawn before its’s admission.
- Amendment of Section 11 – In the explanation to pertaining section, which talks about persons not entitled to make an application, the following explanation has been inserted and added:
For the purposes of the said section, nothing shall prevent a corporate debtor from initiating corporate insolvency resolution process against another corporate debtor.
- Amendment of Section 14- In Section 14 of the principal act, which deals with provisions regarding moratorium, the following amendments have been encompassed:
- In sub-section (1), the following Explanation has been inserted: Notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, Local Authority, Sectoral Regulator or any other authority constituted under any other law for the time being in force, shall be not be suspended or terminated on the grounds of insolvency (Provided that there is no default in payment of current dues arising from the use or continuation of the above mentioned grants and rights during the moratorium period.)
- After sub-section (2), the following sub-section has been inserted: (2A)- Where the interim resolution profession or resolution professional, considers the supply of good and services censorious to protect and preserve the value of the corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as specified.
- In sub-section (3), for clause (a), the following clause has been substituted: (a) such transactions, agreements or other arrangements as may be notified by the Central Government in consultation with any financial sector regulator or any other authority.
- Insertion of new section 32 A: After section 32 (which deals with appeals), the following section has been inserted –
(1) Notwithstanding anything to the contrary contained in IBC, the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease and the corporate debtor ahl lot be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority under section 31, if the resolution plan results in change in the management or control of the corporate debtor to a person who was not –
- A promoter or in management or control of the corporate debtor or a related party of such a person
- A person with regard to whom the relevant investigating authority has on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or complaint to the relevant authority (or Court):
Provided that if a prosecution had been instituted during the corporate insolvency resolution process against such corporate debtor it shall stand discharged from the date of approval of the resolution plan (the requirements under this sub-section should have been fulfilled)
Provided further that every person who was a “designated partner” or an “officer who is in default” or was in any manner responsible to the corporate debtor for the conduct of its business and who was directly or indirectly involved in the commission of such offence, shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor.
(2) No action shall be taken against the property of the corporate debtor in relation to an offence committed prior to commencement of the corporate insolvency resolution process of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority, which results in the change in control of the corporate debtor to a person, who was not –
- a promoter or in the management or control of the corporate debtor or a related party of such a person; or
- a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence and has filed a report/complaint to the relevant authority (or Court).
Explanation – An action against the property (of Corporate Debtor) in relation to an offence shall include attachment, seizure, retention or confiscation of such property. Nothing in this sub-section shall be construed to bar an action against the property of any person, who has acquired such property through corporate insolvency resolution process.