As per the reports, stressed- asset companies, banks and other creditors, and insolvency, as well as resolution professionals, are in a quandary in the absence of any clarity about the fate of applications filed under the IBC before the Covid-19 outbreak in India. Lawyers, resolution professionals and stakeholders said that the announcements made by the Central Government on 24th March, 2020 regarding raising the threshold for invoking IBC proceedings to Rs. 1 crore from Rs. 1 lakh, to prevent triggering of insolvency cases against small and medium enterprises facing the brunt of the pandemic.
It was decided on 29th March, 2020 by the IBBI to not to include the lockdown period in any ongoing CIRP, these announcements were silent on the already- filed applications where the disputed amount was less than Rs. 1 crore and which were yet to be admitted by the NCLT. “The notification does not clearly specify the date on which the higher threshold becomes effective”. “The general presumption under the law would be that the change is prospective.
Therefore, it would not apply to existing proceedings.” “Pre-Covid cases filed but not admitted, should be entertained by the NCLT on merits because the notification of increasing the threshold limit to Rs. 1 crore does not talk about the retrospective effect. So, it is prospective.” Any application filed before the Covid-19 outbreak should be allowed and not suspended. “Insolvency Professionals said that they will be able to comment on the intention of the lawmakers only after a notification is issued”.
But, confusion persists over the application pending for admission and, in the absence of clarity, many companies which lenders were proceeding against may seek refuge in the moratorium. There are around 1,000 cases which were yet to be admitted by various benches of the tribunal. Suspension of the proceedings is also hurting the revenue of the resolution professionals. There are about 2,000 companies, including Jet Airways, Reliance Communications, Videocon Group and Lavasa, which are currently undergoing Corporate Insolvency Resolution Process under the IBC. Threshold has been increased for fresh cases.
“But, there is a lack of clarity on cases which have been filed before the NCLT but have not been admitted.” “It is a settled principle of law that all amendments and ordinances are prospective in nature unless there is a specific provision for retroactive application.” If pre-Covid applications does not get admitted, lenders will suffer huge losses and some may become bankrupt themselves.
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