The union cabinet has approved a proposal and gave relief to companies from insolvency proceedings for the next six months amid the COVID-19 pandemic, sources told CNBC-TV18 as reported by MoneyControl.
The proposal to bring in an amendment to the Insolvency and Bankruptcy Code (IBC), 2016 was moved as a one time measure by the Ministry of Corporate Affairs.
“Amendment has been proposed to give a six month window. Lenders or creditors during these six months, under the current impact due to COVID-19, cannot drag a fresh case of default for bankruptcy. The move will be announced formally later with the comprehensive economic package,” the source told the channel.
Once the President of India gives nod to the cabinet decision, the new clause in the Act --Section 10A -- will suspend Sections 7, 9, and 10 for six months or until further notice. However, the report also said that the clause shall not extend for more than a year.
Last month, while announcing the increase in default threshold to Rs 1 crore, Finance Minister Nirmal Sitharaman said that if the situation of coronavirus outbreak continued beyond 30 April, then the ministry would consider suspending section 7, section 9 and section 10 of the IBC for a period of six months so the companies can be stopped from being forced into insolvency proceedings.
The concerned sections empower lenders to approach National Company Law Tribunals (NCLT) against the defaulting entities. Section 7 of the IBC allows initiation of corporate insolvency resolution process by financial creditor, while Section 9 allows operational creditors to file application for initiation of insolvency process by operational creditor.
Further, a corporate debtor who has committed a default, can filed for initiation corporate insolvency resolution process under Section 10 of IBC.
There have been calls from several sections of the industry for the move as due to the coronavirus crisis and the nationwide lockdown business are in a standstill making it difficult for firms to pay their dues.
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