SECTION 10A OF IBC SHALL APPLY EVEN TO PENDING CASES WITH RESPECT TO DEFAULTS THAT HAVE ARISEN ON OR AFTER 25 MARCH, 2020

Siemens Gamesa Renewable Power Private Limited v. Ramesh Kymal

The National Company Law Tribunal (NCLT), Chennai by the order dated 9 July, 2020, interpreted the applicability of section 10A of IBC which was promulgated by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 (Ordinance) published on 5 June, 2020.

Background:

  • The Application has been filed by Siemens Gamesa Renewable Power Ltd. after the promulgation of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 on 5 June, 2020.
  • A new section namely section 10A, has been inserted in the Insolvency and Bankruptcy Code, 2016. 
  1. Section 10A bars initiation of corporate insolvency resolution process against a corporate debtor for any default arising on or after 25 March, 2020 for a period of six months which shall not exceed beyond one year. 
  2. The proviso states 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. 
  • The Operational Creditor made a claim of INR 104.11 crore against the Applicant with the date of alleged default of the claim amount to be 30 April, 2020.

Issue:

  • Whether 30 April, 2020 will fall within the scope of section 10A when the ordinance introducing section 10A was promulgated on 5 June, 2020. 

Respondent submitted:

  • The interpretation should be done for the applications that are filed after 5 June, 2020 in relation to defaults falling on or after 25 March, 2020.
  • There is a distinction between applications already filed and those to be filed. 
  • If there was no financial distress arising out of COVID-19 pandemic, then section 10A protection cannot be sought for. 
  • The Respondent argued using cases such as Chandrasingh Manibhai v. Surjit Lal Ladhamal Chhabda (AIR 1951 SC 199), and Arrowline Organic Products Private Limited v. Rockwell Industries Ltd. (IA/341/2020 in IBA 1031/2019), it can be said that the application of the statute cannot be to suits already pending. 

Applicant submitted:

  • The introductory portion of the Ordinance clearly gives out the objects and reasons for promulgation and it is clear that the executive was concerned about the effect of the COVID-19 pandemic. 
  • It must be noted that the provisions of section 10A shall not apply to defaults that have arisen in relation to a corporate debtor prior to the relevant date of 25 March, 2020 when the nationwide lockdown came into force. 
  • The term ‘ever’ in the proviso to section 10A means to cover both pending applications filed in relation to default occurred on or after 25 March, 2020.
  • As per Anuj Jain v. Axis Bank Limited (2020 SCC Online SC 237), it can be said that the object of IBC is to balance interest of all stakeholders. 

Order:

  • The Ordinance has taken into consideration the extraordinary situation, uncertainty and financial stress created on account of the COVID-19 pandemic. 
  • The suspension should be done as per section 10A irrespective of any default being committed or admitted without prejudice to the contention of the applicant that no default has been committed by the applicant. 
  • The date of the alleged default of the claim amount is stated to be 30 April, 2020 and the section 10A clearly states that proceedings shall be suspended for any default arising on or after 25 March, 2020.
  • The date of 30 April, 2020 is a date posterior to the date on which the Ordinance was promulgated i.e. 5 June, 2020 but it is has retrospective application from 25 March, 2020.
  • The disruptions due to the COVID-19 pandemic may be treated as ‘force majeure’.
  • The proviso to main provision of section 10A makes it clear that the hands of the clock were not required to be temporarily frozen but are required to be permanently interdicted in relation to defaults occurring on or after 25 March, 2020 by using the term ‘no application shall ever be filed’.

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