IA/395/2020 in IBA/215/2020
Re: Siemens Gamesa Renewable Power Pvt. Ltd. v. Ramesh Kymal
While the proceedings are pending under Section 9 of the Insolvency and Bankruptcy Code, 2016 (in short “I&B Code, 2016”) against the Corporate Debtor, Siemens Gamesa Renewable Pvt Ltd, on June 5, the Central Government promulgated Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 to suspend Sections 7, 9 and 10 of the Insolvency and Bankruptcy Code, 2016.
In view of the insertion of Section 10A, the Corporate Debtor moved an application before the NCLT to dispose of the insolvency proceedings as the date of the alleged default was April 30.
The Operational Creditor sought to draw a distinction between the already filed insolvency petitions under IBC from the ones that are yet to be filed and argued that Section 10A was not applicable to pending proceedings.
Further, it is also contended on the part of the respondent that if there was no financial distress arising out of COVID pandemic, however there has been a default on the part of the Corporate Debtor, then the protection of the newly inserted Section 10A will not come into play as it is evident from the intention in promulgating the Ordinance that the benefit of the newly inserted Section 10A is to be available only to those who have in effect committed a ‘default’ in the context of Section 7 or Section 9 of I&B Code and such a default arises out of the financial distress due to the COVID pandemic being prevalent.
NCLT discussed at length the power of the Executive to promulgate an Ordinance and the emergent reasons to introduce the Ordinance at hand.
It was observed that, The Executive, as manifest from the Objects and reasons, seems to have also been concerned about proper suitors being available for resolution of insolvency of corporate persons if pushed into insolvency in relation to defaults, arising on or after 25th March 2020, object of I&B Code is for the resolution of insolvency of corporate persons in a time bound manner by maximizing the value of the assets available with the Corporate Debtor by balancing the interest of all the stakeholders concerned, which may not happen; this seems to be apprehension of the Executive under the prevailing situation prompting it to exclude the default arising on or after 25.03.2020 as a ‘default’ itself giving rise to the filing of an application seeking initiation of the CIRP.
Analysing Section 10A, the NCLT noted:
- The main provision opens with a non-obstante clausewhich overrides Section 7,9 and 10 for initially a period of six months with a saving for a further extension of a period beyond Match 25, 2021.
- Provisions of Section 10A did not applyto the defaults which had arisen in relation to a corporate debtor prior to the relevant date of March 25, 2020, and such creditors were thus not restrained from moving NCLT under IBC.
While the main provision of Section 10A taken together with the Explanation makes it clear that a Lakshman Rekha’, so to say, has been demarcated by providing the relevant date of 25.03.2020 in relation to a ‘default’ and for filing an application for the initiation of CIRP against the corporate persons for the defaults occurring on or thereafter, however it must be noted that the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 (No. 9 of 2020) inserting Section 10A was in itself notified only on 05.06.2020 in the Gazette of India, even though, pegging the disability to file an application for initiation of CIRP to the defaults arising on or after 25 March 2020.
In response to the question as to what would happen to those cases which had been filed between March 25, 2020 and June 5, 2020, the NCLT opined that to say that Section 10A would only apply to those applications which were filed after June 5, was untenable.
Confining the applicability of the Section 10A to only those applications which are filed after June 5, 2020 is contrary to the legislative intent and object expressed of its promulgation, NCLT said.
Further, laying emphasis on the term “ever” as contained in the proviso to Section 10A, the NCLT added the pending application filed in relation to defaults which have occurred on or after March 25 have been removed from the ambit of Sections 7, 9 and 10 IBC.
The proviso to main provision of Section 10A makes it abundantly clear that the hands of the clock were not required to be temporarily frozen for a period of six months or such further period not exceeding one year but are required to be permanently interdicted in relation to defaults occurring on or after 25.03.2020 by the use of the term no application shall ever be filed for initiation of CIRP of a corporate debtor for the said default arising during the said period.
The NCLT thus concluded that the Ordinance of June 5, 2020 was applicable retrospectively to the defaults arising on or after March 25, 2020.
Consequently, since the alleged default in the case at hand had arisen on April 30, the NCLT held that the instant case was hit under Section 10A.
The main insolvency plea was accordingly rejected.