Government extends suspension of fresh insolvency proceedings for three months

The government has extended by three months the suspension of certain sections of the Insolvency and Bankruptcy Code (IBC) with effect from September 25.

The ministry of corporate affairs, which notified the extension on Thursday, had received extensive representation from the industry seeking extension of the suspension, according to reports.

The current suspension of sections 7, 9 and 10 of the IBC for six months from March 25, as per the ordinance promulgated in June, was ending on Friday.

While section 7 allows financial creditors to initiate insolvency proceedings against a corporate debtor, section 9 grants these powers to operational creditors and section 10 enables corporate debtors to initiate the proceedings.

The provisions of section 10A of the second amendment to the IBC, recently enacted by Parliament to replace the ordinance, provided the government with the option to extend the suspension for up to a year from the date of commencement.

During a debate on the IBC amendment in Parliament, finance minister Nirmala Sitharaman had said she would rather define a definite period for the suspension and seek the permission of the House for an extension than let the suspension go on indefinitely.

The suspension, aimed at protecting companies from being taken to insolvency court due to pandemic-induced stress, barred companies from initiating insolvency proceedings for defaults occurring from March 25 onward.

Where earlier estimates had pegged India’s infection curve to peak in July, the country consistently recorded the highest number of daily cases in the world at 86,508 as of Thursday, bringing total cases to 5.7 million.

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Most institutions have cited the persistent spread of the infection and continued local lockdowns as dragging down India’s recovery momentum from the initial spurt in July and August.

Further, rating agencies, brokerages and multilateral institutions revised their estimates for the Indian economy to a double digit contraction for the ongoing fiscal, with Goldman Sachs projecting -14.8% growth.



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