Insolvency and Bankruptcy Amendment Bill, 2020


The Insolvency and Bankruptcy Code, 2016 has witnessed new amendments of certain provisions that have already been passed by the Rajya Sabha on 12 March 2020 by voice vote. This is the 4th time the new act has seen recommendations that were required to be amended. This amendment is trying to strike a balance between the corporate debtors and the financial creditor. It is aimed to provide immunity and primacy to the corporate debtors who have fallen in the pit of corporate insolvency resolution process or liquidation by a class of financial creditors due to the defaults of the third party wherein meaninglessly they are dragged to the courts.

The significant alterations observed are:

Firstly, clause (12) of section 5 has been omitted so as to illuminate that the insolvency commencement date is the date of admission of an application for initiating the corporate insolvency resolution process (CIRP).

Secondly, under Section 4 the Code required a default of one lakh rupees by the corporate debtor for the initiation of insolvency proceedings by the financial creditors, now under Section 7 this bill stipulates the minimum threshold and requires that allottees under a real estate project to also be installed as financial creditors who can initiate a corporate insolvency resolution process against the corporate debtors but there must not be less than one hundred of such allottees under the same real estate project or not less than ten percent of the total number of such allottees under the same real estate project, whichever is less.

Thirdly, Section 11, Explanation II has been inserted wherein the corporate debtor cannot be prevented from initiating corporate insolvency resolution process against another corporate debtor but only under certain conditions which are further clarified, where a corporate debtor is already undergoing CIRP, or has completed CIRP 12 months preceding the date of making of the application or against whom a liquidation order has been made.

Fourthly, the makers believed it is mandatory that in order to make the Insolvency process successful the new acquirers shall not be burdened with the legacy issues of the Company acquired. Hence, by inserting Section 32A the liability of a resolution applicant for an offense committed prior to the commencement of the corporate insolvency resolution process shall cease and the applicant shall not be prosecuted for such an offense from the date the resolution plan has been approved by the Adjudicating Authority only if the resolution plan results in the change in the management or control of the corporate debtor subject to certain conditions.

Fifthly, Explanation I has been inserted in Section 14 which states that a license, permit, registration, quota, concession, clearances or a similar grant or right shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period. By insertion of clause 2A the Resolution Professional is empowered to continue with the supply of goods and services detrimental to protect and preserve the value of the corporate debtor and it shall also not terminate suspend or interrupt the supply of such goods and services. This will help in keeping intact the credibility of the entire process, it will enhance the value of the company so that other companies are willing to acquire it and will further give the creditors confidence in getting their money back. 

The government has been quite proactive in facing the dynamic challenges under the Insolvency and Bankruptcy Code, 2016 and it is too soon to judge the efficacies of this particular law which was enacted with a view to consolidate and amend the laws relating to reorganization and insolvency resolution. With the changing times, there will always be a requirement to fill in the critical gaps that are created but what is also required is to have paramount faith in our legislature government and our judiciary.

Heena Jalan
School of Law, KIIT University


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