INTRODUCTION
The COVID-19 pandemic brought the world to a stand-still with its devastating infection and mortality rates. The pandemic spared none and the Indian economy was no exception. When the Covid pandemic hit India in 2020 it led to an estimated 7.7% contraction of India’s GDP.[1] Such a significant hit to India’s economy could be felt in every sector and industry. Such a situation could not be ignored by the Government. Therefore, the government put forth a series of measures which they believed would help alleviate the pandemic’s impact on the economy.
CHANGES TO ACCOMMODATE THE PANDAMIC SITUATION
First, the Government of India declared that insolvency proceedings under the IBC Code, 2016 could no longer be initiated against defaults that had taken place between 25th March 2020 and 25th March 2021. The Government further announced that even if certain defaults had taken place prior to the aforementioned period, no insolvency proceedings could be initiated against such defaults unless the amount of the default was equal to or above Rs. 1 Crore.[2] Such measures were initiated by the government to ensure that businesses entities did not fall due to defaults and insolvency occurring owing to the pandemic situation in the country. The Covid situation forced people to stay in the safety of their homes in order to ensure the containment of the virus. Staying confined at their homes made it very hard for businesses to function as most businesses in India were not automated or on an online platform. Those of us who were able to foresee the pandemic situation and take appropriate measures were able to survive during this time, but a majority of the population did not expect the pandemic to hit us as hard as it did, leaving us scrambling. Millions of people lost their jobs during Covid-19 as businesses became unsustainable due to a huge drop in demand for various products which were no longer needed due to the lockdowns imposed. The scare of the disease also limited contact between people, leaving them hesitant to buy products which were not necessary. This slump in demand over a period of time led to huge losses for businesses, which ultimately had to shut down due to no sales, which led to even higher unemployment rates, leading to an even lesser rate of consumption and demand. This vicious cycle affected many economies on a global scale. The pandemic should not be one of the reasons why businesses fall as if such a situation is left unchecked it could lead to financial disaster for an already ailing economy. Therefore, the government along with the Reserve Bank of India came up with these measures to give some breathing space to businesses and entrepreneurs.
The pandemic situation similarly had a profound impact on insolvency proceedings under the IBC, as it was feared that the pandemic could make an applicant hesitant to submit resolution plans to the Committee of Creditors (COC) due to the state of the economy, making any plans for the restructuring and rebuilding of a business nearly impossible. This situation of a dearth of resolution plan applicants would have then resulted in many businesses directly going into insolvency proceedings without anyone bailing them out, defeating the whole purpose of the CIRP (Corporate Insolvency Resolution Process) process in the first place. The resulting proceedings from the numerous businesses going into insolvency would have put an unbearable burden on the adjudicatory authorities who already have a significant backlog of cases. Therefore, certain measures had to be taken to remedy the situation. In lieu of this, the courts also supported the viewpoint of the government by implementing various measures to ensure that the timelines under the IBC Code were relaxed. First, the requirement provided under the IBC Code relating to the completion of the CIRP process within 330 days was relaxed by an order of the NCLAT (National Company Law Appellate Tribunal). Other requirements to take various steps in the CIRP process within certain timeframes were also relaxed under this order. This was demonstrated in the case of Mr. Abhilash Lal & Axis Bank Ltd v. Seven Hill Healthcare Pvt. Ltd. & Anr.[3], wherein the Court allowed an extension of time period for the CIRP when the petitioner gave reason that they were unable to complete the resolution process due to the Covid pandemic. The issue of the moratorium period was first discussed in the case of Canara Bank v. Deccan Chronicle Holdings Ltd[4], wherein the court opined that any matter or suit pending before the Supreme Court under Article 32 of the Indian Constitution, or an order issued under Article 136, or under the powers of the High Court under Article 226 shall remain unaffected by the moratorium period. Next, in the case of Alchemist Asset Reconstruction Company Ltd. v. M/s Hotel Gaudavan Pvt. Ltd. & Ors.[5] the court held that Arbitration procedures against the Corporate Debtor cannot begin or continue once the moratorium period under Section 14 takes effect. Thereafter, in the case of Dakshin Gujarat VIJ Company Ltd. v. M/s ABG Shipyard Ltd. & Anr.[6] the court held that the payment of current charges due by the Corporate Debtor for the delivery of Essential Goods and/or Services would not be affected by an order of moratorium. The government also announced a special pre-packaged Insolvency Resolution Process (PRIRP) under its drive to specially deals with situations relating to Micro, Small and Medium Enterprises (MSME). Under this, MSME debtors are allowed to negotiate a base plan with their creditors (if their debt is below Rs. 10 Lakhs), which needs to be approved by at least 75% of the company’s members and 66% of its unrelated financial creditors. Once approved, the MSME approaches the NCLT with the plan who would give it authorisation. Once the PRIRP process is initiated, a period of limited moratorium is declared, under which a Resolution Professional is appointed to handle the process. One of the major differences between a CIRP and PRIRP is that under the latter, the pre-existing management of the business stays in control of the company but operates under the oversight of the Committee of Creditors. The PRIRP must be completed within a period of 120 days from the date of commencement, failing which the adjudicating authority may terminate the resolution process.
CONCLUSION
These measures go on to show that even though the pandemic has affected our economy deeply, but this does not mean that we cannot recover. The new resolution process and the judgments by the Courts portray that the Indian legislature and judiciary understand the impact that Covid-19 has had on our economy, and therefore, has given the moratorium period in the insolvency resolution process certain amount of flexibility so that it can support Indian businesses to a certain extent without having to immediately break off, or in this case, be liquidated. It therefore talks about the changes to the IBC, with special regard to the moratorium, under the Covid pandemic. The pandemic bought a huge amount of loss to the economy, pushing man businesses to the brink of insolvency. The governmental authorities and the Reserve Bank of India could not afford to sit on the side-lines and see the vast number of businesses disappear, and therefore took various actions to help mitigate the damages caused to these businesses under the covid threat.
Author(s) Name: Purti Srivastava (School of Law, Bennett University, Greater Noida)
References:
[1] https://www.thehindu.com/business/Economy/indias-real-gdp-estimated-to-contract-by-77-in-2020-21/article33521311.ece#:~:text=India’s%20real%20GDP%20(Gross%20Domestic,Office%20(NSO)%20on%20Thursday., last visited 16/08/2022.
[2] http://www.lawstreetindia.com/experts/column?sid=509, last visited 16/08/2022.
[3] 2018 SCCOnline NCLT 12900.
[4] 2017 SCCOnline NCLAT 255.
[5] Civil Appeal No. 16929 of 2017.
[6] Company Appeal (AT) (Insolvency) No. 334 of 2017.
