Suspension Of Insolvency Process : MP HC Seeks Centre's Response On Plea Against IBC Ordinance

The High Court of Madhya Pradesh, Indore Bench, has sought the response of the Central Government to a petition challenging the recent Ordinance, which suspended the initiation of Corporate Insolvency Process with respect to defaults which have occurred after March 25, the declaration of country wide lockdown.

The petition filed by Advocate V. N. Dubey, challenges the Insolvency and Bankruptcy Amendment (Ordinance) 2020 promulgated on June 5 which inserted Section 10A in the principal Act to shield companies from insolvency proceedings for six months.

Section 10A provides a suspension on initiation of the Corporate Insolvency Resolution Process for any default arising on or after 25th March 2020, for period of six months or such further period not exceeding one year. The First Proviso to Section 10A, provides for a complete forever bar on initiation of CIRP in respect of the defaults that occur during the period 25.03.2020 to 25.09.2020 or 25.03.2021 (if extended by notification). The Proviso to Section 10A puts in force that, no application for initiation of CIRP under Insolvency and Bankruptcy Code, 2016 can be filed by any person for any default made during the said period.

The petitioner claims that, this ordinance leaves a direct impression that, any debt which is supposed to be paid during this time period, if not honoured on due date, then no application for initiation of CIRP under Insolvency and Bankruptcy Code, 2016 can be taken any time in future and the same opens up the way for huge quantum of wilful defaults, brings in force a means of inequality and prejudice to the public at large.

The petition also alleges the impugned law, to be directly obstructing the right to access to justice been conferred under Article 14 and 21 of the Indian Constitution. It has also been alleged to be violating right to business and profession conferred under Article 19(1)(g).

"The Proviso to Section 10A of the Insolvency and Bankruptcy Code, 2016, opens up the way for huge quantum of wilful defaults, brings in force a means of inequality and prejudice to the public at large and if not brought down immediately is capable of diluting the object and purpose of the Insolvency and Bankruptcy Code, 2016, and directly violating the basic fundamental rights, constitutional rights and other legal rights of the public at large.", the plea reads.

On June 30, a bench comprising Justices S C Sharma and S K Awasthi granted six weeks time to the Assistant Solicitor General, Milind Phadke, to seek instructions from the Central Government.

The matter will be next considered on August 27.