Section 10A of Insolvency And Bankruptcy Code, 2016 (IBC )

In pursuance of the aforesaid announcement, on 5th June 2020, an Ordinance titled “Insolvency And Bankruptcy Code (Amendment) Ordinance 2020” came to be promulgated by insertion of section 10A which has practically suspended the applicability of section 7, 9, and 10 of the Insolvency & Bankruptcy, 2016 (“the Code”) for initiation of fresh bankruptcy proceedings against persons impacted because of COVID-19, for at least six months, up to a maximum of one year.

Reason for introducing Section 10A: It has been introduced with a view to providing protection to the corporate persons experiencing distress on account of the unprecedented situations, from being exposed to insolvency proceedings under the Code for up to a period of 1 year.

10A: Not with standing anything contained in sections 7,9 and 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf:

Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period.

Explanation – For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any default committed under the said sections before 25th March 2020.”

Also Read: NON PROFIT MAKING COMPANY

POINTS TO BE CONSIDER:         

  • Section 10A provides that “no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March 2020 for a period of six months or such further period, not exceeding one year from this period, as may be notified in this behalf”.
  • This means that these provisions shall remain suspended from March 25 till September 25, unless extended for another six months, which would extend the suspension up till March 25, 2021.
  • However, the proviso to the section states that no application for insolvency resolution shall ever be filed against a corporate debtor for any default occurring during the suspension period.
  • While the main Section 10A suspends such applications for a limited period, the proviso enlarges the scope to provide complete amnesty under the IBC for any default occurring during such a period.
  • The role of a proviso in a statute is to restrict the application of the main provision under exceptional circumstances.
  • However, the proviso here expands the substantive provision in the main section.
  • Further, if the main provision is unclear, a proviso may be given to explain its true meaning.

Please Note: The Central Government hereby notifies a further period of three months from the 25th September 2020 for the purposes of the said section, vide Notification No. S.O. 3265(E) dated 24.09.2020 issued by MCA.

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