Stressed-asset companies, banks and other creditors, and insolvency, as well as resolution professionals, are in a quandary in the absence of any clarity about the fate of applications filed under the Insolvency & Bankruptcy Code (IBC) before the Covid-19 outbreak in India.
The government on March 24 raised the threshold for invoking IBC proceedings to Rs 1 crore from Rs 1 lakh, to prevent triggering of insolvency cases against small and medium enterprises facing the brunt of the pandemic. On March 29, the Insolvency & Bankruptcy Board of India decided to not include the lockdown period in any ongoing corporate insolvency resolution process.
Lawyers, resolution professionals and stakeholders ET spoke to said the announcements were silent on the already-filed applications where the disputed amount was less than Rs 1 crore and which were yet to be admitted by the National Company Law Tribunal (NCLT).
“The notification does not clearly specify the date on which the higher threshold becomes effective,” said Sudip Mahapatra, a partner at law firm S&R Associates. “The general presumption under the law would be that the change is prospective. Therefore, it would not apply to existing proceedings.”
Insolvency professional Sumit Binani also made a similar observation. “Pre-Covid cases filed but not admitted, in my opinion, should be entertained by the NCLT on merits because the notification of increasing the limit to Rs 1 crore does not talk about retrospective effect. So, it is prospective.”
Binani said any application filed before the Covid-19 outbreak should be allowed and not suspended. “We will be able to comment on the intention of the lawmaker only after a notification is issued,” he said.
But confusion persists over the applications pending for admission and, in the absence of clarity, many companies which lenders were proceeding against may seek refuge in the moratorium, said people tracking the matter.
According to one of them, there are around 1,000 cases which were yet to be admitted by various benches of the tribunal. Suspension of the proceedings is also hurting the revenue of the resolution professionals, they said.
About 2,000 companies, including Jet Airways, Reliance Communications, Videocon Group and Lavasa, are currently undergoing resolution process under the IBC.
Ashish K Singh, the managing partner of law firm Capstone Legal, said the threshold had been increased for fresh cases. “But there is a lack of clarity on cases which have been filed before the NCLT but have not been admitted,” he added.
“It is a settled principle of law that all amendments and ordinances are prospective in nature unless there is a specific provision for retroactive application,” adds Singh.
If pre-Covid applications do not get admitted, lenders will suffer huge losses and some may become bankrupt themselves, said Kamal Nayan Jain of Klass Insolvency Resolution Professional.
Source: Reuters.com