Govt extends suspension of new bankruptcy filing by three months

The Centre on Thursday suspended the operation of the Insolvency and Bankruptcy Code (IBC) by another three months to December to help distressed borrowers stay out of court.

“The suspension of the Code, issued initially for six months expiring on Thursday is extended for another three months from 25 September,” a government order said after a bill to this effect was passed by Parliament last week.

It suspended Sections 7, 9, and 10 to provide relief for companies reeling under the impact of the pandemic.

However, the suspension did not evoke goods response from experts with Sumit Batra of law firm ‘India Law Alliance’ calling suspension of section 10 as “illogical”.

“Another extension of three months for initiation of bankruptcy against defaulting corporate entities will further aggravate the situation and lead to an unprecedented rise in fresh filing once the suspension is revoked.

“While the logic of suspension for not being able to initiate proceedings under Section 7 and 9 of IBC, seems justified to an extent that lockdown triggered due to widespread outbreak of Covid-19 affected the paying capacity of the corporate debtors but why such a suspension is being imposed for applications under section 10 seems illogical.

“The intent and extent of section 10 petition are to enable the corporate debtor to initiate insolvency against themselves in order to resolve the financial stress in a time-bound manner. Therefore, Section 10 petitions should have been excluded from being covered under this suspension,” Batra told DH.