Govt extends suspension of fresh proceedings under insolvency law by another 3 months

Gaurav Gupte, Partner at law firm Cyril Amarchand Mangaldas, said that under Section 10A of the IBC, initiation of insolvency processes had been suspended in respect of defaults occurring in the six months period commencing from March 25.The Section also empowered the government to extend the suspension for any time up to one year...

The government has again extended the suspension of fresh proceedings under the insolvency law by three more months till March 24 next year amid the disruptions caused by the coronavirus pandemic. A notification for a three-month extension of the suspension, which was to end on December 24, was issued by the corporate affairs ministry on Tuesday.

The three-month period would be from December 25. An ordinance was promulgated in June this year for suspension of fresh insolvency proceedings and the same came into force retrospectively from March 25 -- the day when the nationwide lockdown to curb spreading of coronavirus infections had come into effect.

Later, a bill to replace the ordinance that had amended the Insolvency and Bankruptcy Code (IBC) was cleared by Parliament in September. Initially, the suspension of fresh proceedings under the IBC was for six months starting from March 25 and then, it was extended by three months. Now, the suspension has been further extended by three months which will end on March 24, 2021.

The corporate affairs ministry has suspended Section 7, 9 and 10 to provide relief for companies reeling under the impact of the pandemic. Sections 7, 9 and 10 deal with initiation of corporate insolvency resolution process by a financial creditor, operational creditor and corporate debtor, respectively.

On Monday, Finance and Corporate Affairs Minister Nirmala Sitharaman said that suspension of fresh proceedings under the IBC would be extended. Gaurav Gupte, Partner at law firm Cyril Amarchand Mangaldas, said that under Section 10A of the IBC, initiation of insolvency processes had been suspended in respect of defaults occurring in the six months' period commencing from March 25.

''The Section also empowered the government to extend the suspension for any time up to one year... This is the second extension for another period of three months. Under the framework of the Section as it currently stands, there cannot be any further extensions,'' Gupte said..