The Supreme Court held that Section 10A of the Insolvency and Bankruptcy Code (IBC) barred filing of applications for the commencement of the CIRP in respect of a corporate debtor for a default occurring on or after 25 March 2020, even if such application was filed before the date on which the amendment came into force i.e. 5 June 2020.
The appellate jurisdiction of this Court under Section 62 of the Insolvency and Bankruptcy Code, 2016 has been invoked to challenge the judgment and order of the National Company Law Appellate Tribunal (NCLAT) dated 19 October 2020.
The NCLAT affirmed the decision of the National Company Law Tribunal (NCLT) dated 9 July 2020, holding that in view of the provisions of Section 10A, which have been inserted by Act 17 of 2020 with retrospective effect from 5 June 2020, the application filed by the appellant as an operational creditor under Section 9 was not maintainable.
The issue which falls for determination in the appeal was whether the provisions of Section 10A stand attracted to an application under Section 9 which was filed before 5 June 2020 (the date on which the provision came into force) in respect of a default which has occurred after 25 March 2020.
The question which needs to be resolved is whether Section 10A would stand attracted to a situation such as the present where the application under Section 9 was filed prior to 5 June 2020, when Section 10A was inserted, and in respect of a default which has taken place after 25 March 2020.
The proviso to Section 10A stipulates that “no application shall ever be filed” for the initiation of the CIRP of a corporate debtor “for the said default occurring during the said period”. The explanation which has been inserted for the removal of doubts clarifies that Section 10A shall not apply to any default which has been committed under Sections 7, 9 and 10 before 25 March 2020.
The division bench of Justice Dr. Dhananjaya Y Chandrachud and M.R. Shah held that the retrospective bar on the filing of applications for the commencement of CIRP during the stipulated period does not extinguish the debt owed by the corporate debtor or the right of creditors to recover it.
The Apex court held that Parliament has stepped in legislatively because of the widespread distress caused by an unheralded public health crisis. It was cognizant of the fact that resolution applicants may not come forth to take up the process of the resolution of insolvencies (this as we have seen was referred to in the recitals to the Ordinance), which would lead to instances of the corporate debtors going under liquidation and no longer remaining a going concern.
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