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23/12/2020

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Centre Notifies Three-Month Extension Of IBC Suspension

The ministry of corporate affairs (MCA) notified the three-month extension of the suspension on sections 7, 9 and 10 of the Insolvency and Bankruptcy Code (IBC) on Tuesday.

The MCA also notified 45 sections of the amended Companies Act, largely relating to the decriminalisation and reduction of fines of various offences under the law, in an earlier notification on Monday.

The decision to extend the suspension, announced by finance minister Nirmala Sitharaman on Tuesday, would make it applicable for a whole year, the maximum period permitted as per the amendments to the code.

The move was in light of the major stress caused to every industry due to the pandemic, the minister said. The end of the previous three-month extension of the suspension was falling on December 25.

Sections 7, 9 and 10 of the IBC allow for the initiation of insolvency proceedings against a corporate debtor by financial creditors, operational creditors and the debtor itself, respectively.

With effect from March 25, the objective of the suspension was to ensure firms were not dragged to insolvency court on account of pandemic-induced stress. Experts have said the economy is unlikely to reach pre-pandemic levels until 2022.

Sitharaman had said in Parliament that the government would approach the House if it felt the need to extend the suspension beyond a year.

Companies Act

In terms of the Companies Act, the move came as the latest in a series of decisions aimed at improving the ease of doing business in the country.

While the Companies (Amendment) Act, 2020, was passed by Parliament in September and later notified by the MCA in the same month, the legislation contained provisions allowing the Centre to specify the date of commencement of the various sections.

Apart from decriminalisation of multiple penal provisions, the amended Act also allows certain classes of Indian companies to directly list securities overseas in permissible foreign jurisdictions, among other changes.

The ministry is yet to specify which class of companies would be permitted under these provisions.