The Indian economy has been badly disrupted by the COVID-19 outbreak ("the pandemic"), with restricted cash flows and minimal corporate activity. The balance sheets of many organizations have been significantly impacted, resulting in a lack of finances not just for maintaining corporate operations but also for debt repayment. However, it should be noted that this lack of finances is not a symptom of company failure, but rather of temporary discomfort induced by the pandemic.

1. An Insight Into The Insolvency And
Bankruptcy Code (Amendment)
Ordinance, 2020
The Indian economy has been badly disrupted by the COVID-19 outbreak ("the pandemic"),
with restricted cash flows and minimal corporate activity. The balance sheets of many
organizations have been significantly impacted, resulting in a lack of finances not just for
maintaining corporate operations but also for debt repayment. However, it should be noted
that this lack of finances is not a symptom of company failure, but rather of temporary
discomfort induced by the pandemic.
Various initiatives have been implemented to alleviate the financial pain caused by the
current economic recession for corporations and businesses. The Insolvency and
Bankruptcy Board of India ("the IBBI") inserted Regulation 40C into the IBBI (Insolvency
Resolution Process for Corporate Persons) Regulations, 2016, which provides for the
exclusion of the time period of lockdown imposed by the Central Government in the
aftermath of a pandemic from the time-line for any activity related to a corporate insolvency
resolution process ("CIRP") under the Insolvency and Bankruptcy Code, 2016 ("Code"). 1
Furthermore, Regulation 47A was added to the IBBI (Liquidation Process) Regulations,
2016, which provides for the exclusion of time periods of lockdown imposed by the Central
Government in the aftermath of a pandemic from the computation of the timeline for any
activity related to any liquidation process under the Code. 2 The Reserve Bank of India ("the
RBI") also allowed banks to give a three-month suspension on payment of any term loan
payments due between March 1, 2020 and May 31, 2020.
Most crucially, on June 5, 2020, the President of India promulgated the Insolvency and
Bankruptcy Code (Amendment) Ordinance, 2020 ("the Ordinance"). With the Ordinance in
effect, the filing of applications for initiation of CIRP of corporate debtors under the Code for
categorised defaults has been suspended for a certain period of time, so that corporate
debtors facing financial distress as a result of the pandemic may be protected from being
pushed into CIRP under the Code, giving them some time to regain business sustainability.
The Code was enacted to offer a system for the timely resolution of enterprises and
businesses in financial crisis, so that the value of such organizations' assets can be
maximized and the flow of credit in the economy can be maintained. It was created with the
goal of balancing the interests of all stakeholders, including creditors such as financial
institutions and banks, employees, other secured and unsecured creditors of the corporate
debtor, and the corporate debtor himself. Furthermore, there may not be many prospective
resolution applicants who are interested in injecting cash into the corporate debtor's
resurrection and, as a result, would provide for resolution plans for such corporate debtor. As
a result, even if the corporate debtors are financially sustainable, they will be liquidated

2. prematurely with a poor rate of return on asset sale, negatively harming creditors' interests
and the Code's objectives. As a result, the Ordinance was enacted to advance the Code's
objectives, namely, maximum of asset value, balance of interests of all stakeholders,
including creditors, and settlement of the hardship generated for corporate debtors by the
ongoing economic pandemic.
ANALYSIS OF THE ORDINANCE'S PROVISIONS
Under sections 7, 9, and 10 of the Code, an application to begin CIRP can be filed with the
National Company Law Tribunal ("NCLT"). By filing an application under Section 7 of the
Code, a financial creditor can begin CIRP against a corporate debtor. Similarly, an
operational creditor may commence CIRP by filing an application under Code Section 9.
Finally, a corporate debtor might begin CIRP against itself by filing an application under
Code section 10.
The Ordinance proposes inserting Section 10A into the Code, which essentially states that
no application can be filed to initiate the CIRP of a corporate debtor for a default caused on
or after March 25, 2020 for a period of six months or such further period, not exceeding one
year, as may be notified from such date. 4 The proviso to section 10A specifies further that
no application can 'ever' be submitted to begin CIRP of a corporate debtor under the Code
for such defaults as specified in the Ordinance. 5 In other words, for such defaults,
applications under sections 7, 9, and 10 of the Code have been suspended for the period
provided in the Ordinance.
The Ordinance expressly states that section 10A does not apply to any defaults committed
prior to March 25, 2020. Sections 7, 9, and 10 of the Code remain in effect, and petitions to
begin CIRP can still be filed under the Code for defaults committed prior to March 25, 2020.
According to Section 66(2) of the Code, if a director or a partner of a corporate debtor, as the
case may be, knew or ought to have known before the insolvency commencement date that
the commencement of CIRP of such corporate debtor cannot be avoided by any reasonable
means, and such director or partner did not exercise due diligence in minimizing the
potential loss to the corporate debtor's creditors, the resolution professional may file an
application before the insolvency commencement date. 6 In this regard, the second part of
the Ordinance now inserts sub-section (3) in section 66 of the Code, which states that no
application shall be filed by a resolution professional under section 66(2) of the Code in
respect of defaults for which CIRP initiation has been suspended pursuant to the newly
introduced section 10A. 7 This means that a resolution professional cannot file an

3. application for fraudulent or unlawful trading against directors of firms for defaults for whom
CIRP initiation is halted under section 10A.
It is worth noting that Section 66(2) of the Code addresses the time lag that exists between
when stakeholders learn that CIRP will be initiated against a corporate debtor and when
CIRP actually begins.
Furthermore, unlike Section 66(1) of the Code, which allows for liability for activities taken to
cheat the corporate debtor's creditors or for any fraudulent purpose, Section 66(2) does not
address any type of fraud. As a result, the intent behind the inclusion of section 66(3) in the
Code is to provide immunity to corporate debtor directors for actions taken during the
pandemic that may be detrimental to the interests of creditors but are otherwise taken to
avert the financial risks to which the corporate debtors are exposed during the pandemic.
The unanswered questions
An effort has been made to mitigate the financial concerns of the companies and businesses
by proclamation of the Ordinance. However, the Ordinance has certain fundamental flaws
and left some glaring ambiguities that must be resolved.
1. Ambiguity in suspension duration determination:
Section 10A allows for the suspension of filing petitions to commence the CIRP of a
corporate debtor for a default occurring on or after March 25, 2020 for a period of six months
or such extended term, not exceeding one year, as may be announced. 8 However, it is
unclear whether the six-month suspension period, or any subsequent term not exceeding
one year, shall begin from the date of the Ordinance's promulgation, or from March 25, 2020,
or from any other date specified under Section 10A.
2. Perpetual nature of suspension of filing of applications for classified defaults:
The Ordinance states that no application for CIRP of a corporate debtor under the Code can
ever be filed for such defaults as defined in Section 10A. 9 This indicates that the prohibition
on submitting applications to commence CIRP for such defaults as defined in section 10A is
indefinite. However, the preamble of the Ordinance refers to the impact of the pandemic on
businesses, financial markets, and the economy, stipulating that a moratorium on filing
applications to initiate CIRP is necessary to prevent corporate persons facing financial
distress as a result of the pandemic from being pushed into insolvency proceedings for some
time, until the distress continues. As a result, a permanent restriction on filing applications to

4. commence CIRP for such defaults may be damaging to creditors' interests, as the distress
will not last forever.
The purpose of the Ordinance is to protect corporate persons throughout the period of
financial crisis caused by the epidemic. Once the epidemic is over and corporate debtors are
no longer in financial crisis, imposing a continuous blanket restriction on submitting petitions
to begin CIRP for such defaults as indicated in section 10A is unreasonable.
3. Section 10A's impracticality:
There are no criteria in section 10A for establishing whether a corporate debtor's default was
caused by the epidemic. The Ordinance merely specifies a cut-off date, namely March 25,
2020, after which CIRP cannot be commenced against corporate debtors if defaults occur.
As a result, it may hurt the financial interests of corporate borrowers who defaulted prior to
March 25, 2020, but such defaults were triggered by financial distress induced by the
pandemic. It defeats the goal of the Ordinance, which is to alleviate financial hardship
caused by the pandemic.
Furthermore, the lack of standards to judge whether a default was caused by the epidemic
may incentivize corporate debtors to conduct wilful defaults after March 25, 2020, because
creditors cannot launch CIRP even for such wilful defaults caused by corporate debtors.
Section 10A provides for a blanket postponement of CIRP initiation for any defaults
occurring after March 25, 2020, without taking into account the possibility that some
corporate debtors may take unfair advantage of the immunity afforded to them.
Furthermore, the power to determine whether default by a corporate debtor has been
caused on or after 25th March, 2020 should have been left with the Adjudicating Authority
(“the AA”) under the Code, which is NCLT or NCLAT. As a result, the AA must assess the
incidence of default because it is the triggering event for the commencement of CIRP
against a corporate debtor, 10 and the AA can only do so after filing applications under
sections 7, 9, or 10 of the Code 11. Section 10A, on the other hand, places an unrealistic bar
on filing applications, creating an abnormal position for the AA.
4. Ambiguity in the Ordinance's retroactive application:
It is important to remember that the Ordinance will go into effect on June 5, 2020. The
Ordinance is silent on the disposition of applications filed between March 25, 2020 and June
5, 2020 - whether the Ordinance's application is retrospective or prospective. This calls into
question the Ordinance's rationale, as the Ordinance prohibits the filing of applications.

5. 5. Ambiguity in determining default amount:
The minimum amount of default to be caused for submitting applications to begin CIRP of
corporate debtors under the Code before March 24, 2020 was one lakh, twelve, which was
increased to one crore by a notice dated March 24, 2020 ("the Notification"). 13 The higher
threshold of minimal amount of default under the Notification must act prospectively, i.e., it
shall not apply to the applications filed under sections 7, 9 or 10 of the Code before 24th
March, 2020. 14 It is anticipated that corporate debtors will fail partially before and partly
after March 25, 2020. However, the Ordinance does not specify whether such amount of
default caused in part after March 25, 2020 is to be included or removed for determining the
minimum amount of default under Section 4 of the Code for the purpose of initiating CIRP for
defaults induced in part before March 25, 2020.
It is also possible that corporate debtors will default partly within the suspension period
granted by section 10A, and partly after the suspension period expires. This creates another
ambiguity in the filing of applications for initiation of CIRP for defaults caused after the expiry
of the suspension period provided under section 10A, because the Ordinance makes no
provision for including or excluding such amount of default caused in part before the expiry
of the suspension period provided under section 10A in calculating the minimum amount of
default under section 4 of the Code for the purpose of initiation of CIRP.
6. Irrationality of Code Section 66 Subsection (3):
As previously stated, the Ordinance proposes to insert section 66(3) into the Code, which
provides immunity to the directors and partners of the corporate debtor from contributing to
the assets of the corporate debtor in respect of defaults against which initiation of CIRP has
been suspended pursuant to section 10A introduced by the Ordinance, even if the directors
and partners of such corporate debt or do not exercise due diligence in minimizing the
potential losers. This may alter the dynamics of the economy's credit market, as giving such
immunity may dissuade creditors from lending to companies and businesses during the
epidemic. The Ordinance contains no justification for providing total protection under section
66(3) of the Code in respect of such failures for whom CIRP initiation has been suspended
under section 10A.
Furthermore, section 66(3) of the Code prohibits a resolution professional from making an
application under section 66(2) of the Code in respect of defaults for whom CIRP initiation
has been suspended under to section 10A. 15 However, application under section 66(2) of
the Code can be filed during an on-going CIRP. 16 As a result, the addition of section 66(3)
to the Code is unnecessary, as the Ordinance already prohibits the beginning of CIRP for
defaults classified under section 10A.
7. Ignorance of Micro, Small, and Medium Enterprises:

6. Despite this, the Ministry of Corporate Affairs ("MCA") published Notification 17 on March 24,
2020 to prohibit MSMEs from entering into insolvency proceedings under the Code by
increasing the minimum amount of default for the beginning of CIRP from 1 lakh to 1 crore.
However, the Ordinance makes no provisions for dealing with the problems of Micro, Small,
and Medium Enterprises ("MSMEs"). In practice, the Notification and the Ordinance may
have a negative impact on the financial situation of MSMEs.
MSMEs give credit to firms in the form of operational debt or financial debt, as the case may
be, and companies can default on debt owed to the MSMEs. However, during the
suspension period specified in the Ordinance, MSMEs cannot commence CIRP against such
corporate debtors who make financial defaults after March 25, 2020. Furthermore, starting
March 24, 2020, MSMEs cannot pursue CIRP for defaults that occurred prior to March 24, if
the amount of default is less than one crore. This means that after March 25, 2020, MSMEs
can only commence CIRP for defaults in payment of debt owed to them if two conditions are
met: first, the amount of default must be larger than or equivalent to 1 crore, and second, the
default must have occurred before March 25th. As a result, by prohibiting MSMEs from
commencing CIRP for defaults in payment of debts owed to them, the Ordinance, in
conjunction with the Notification, may hurt rather than safeguard MSMEs' financial interests.
8. Unresolved issues in ongoing CIRPs:
There is little doubt that all businesses are experiencing financial difficulties as a result of the
pandemic. As a result, it is critical to evaluate the situation of ongoing CIRPs. Due to the
financial suffering caused by the pandemic, resolution applicants may face challenges in
implementing resolution plans in ongoing CIRPs. However, the Ordinance does not address
the financial difficulties they have encountered in implementing resolution plans in ongoing
CIRPs during the pandemic.
In circumstances where CIRPs were launched before to the pandemic, the resolution plan
for corporate debtors may not have been proposed, as corporations may not have bid for
corporate debtors due to financial difficulty caused by the pandemic. If no resolution plan is
received by the AA under section 30(6) of the Code before the end of the maximum term
authorized for completion of the CIRP under section 12 of the Code, the corporate debtors
will be forced into liquidation under the Code. 18
9. There will be no stay of proceedings against the personal guarantors:
While the Ordinance suspends the initiation of CIRP for defaults as specifically stated in
section 10A 19, creditors of corporate debtors can still go behind the personal guarantors of
corporate debtors to recover money associated with defaults caused by the corporate
debtors because the Ordinance does not suspend the initiation of proceedings against the

7. personal guarantors of corporate debtors. This may undermine the Code's goal of balancing
the interests of all parties. The Ordinance fails to accommodate the interests of personal
guarantors, putting their financial standing at risk as a result of corporate debtor defaults.
Suggestions and the future
Keeping in mind the ambiguities and flaws mentioned above, the following steps can be
done to ensure the ordinance's seamless implementation:
1. The authorities may issue a notification confirming the start date of the suspension period
specified in Section 10A of the Ordinance.
2. Instead of permanent immunity, corporate debtors could have been granted temporary
exemption from being hauled into insolvency proceedings for failures induced by the
pandemic.
3. Rather than introducing a cut-off date for categorizing defaults under section 10A, the
default caused by the pandemic might simply be excluded from the definition of default
provided by clause (12) of section 3 of the Code by adding a proviso to the definition.
Furthermore, rather than suspending the filing of applications for the initiation of CIRP for
defaults classified under section 10A, the NCLT could have been empowered to determine
whether a default was caused by a corporate debtor due to distress caused by the pandemic
after applications were filed.
4. The IBBI can provide clarification by stating that all such applications filed before June 5,
2020, for the beginning of CIRP for defaults induced after March 25, 2020, will be
suspended.
5. If the defaults in debt payment were caused in part before or after the suspension period
provided in section 10A, then the amount of default caused during the suspension period
shall be allowed to be included in calculating the minimum amount of default under section 4
of the Code for the purpose of initiating CIRP for the default caused in part before or after
the suspension period. Otherwise, if the amount of default caused during the suspension
period is not allowed to be included in such calculation, it will encourage corporate debtors to

8. incur continued defaults in payment of their debts until the minimum amount of default is met
under Section 4 of the Code.
6. The Ordinance grants complete immunity to the corporate debtor's directors and partners
from contributing to the corporate debtor's assets in respect of defaults for which the
initiation of CIRP has been suspended under section 10A, even if the directors and partners
of such corporate debt or do not exercise due diligence in minimizing the potential loss to the
corporate debtor's creditors. Instead, the NCLT may have been given the authority to decide
the liabilities of corporate debtors' directors and partners on a case-by-case basis.
7. Provisions could have been included in the Ordinance to address the problems of
MSMEs, as they have been disproportionately affected by the pandemic. There is an urgent
need to address MSMEs' financial problems. Furthermore, because MSMEs offer debt to the
economy's companies and businesses, they may have been allowed to commence the CIRP
for the defaults listed in section 10A. Otherwise, if MSMEs are not made an exception to the
creditors who cannot initiate CIRP for such defaults, their funds may be blocked, dealing a
significant blow to their financial strength.
8. It is critical to postpone the implementation of already-approved resolution plans in
ongoing CIRPs, as resolution applicants may be facing financial hardship as a result of the
epidemic. Deferring the implementation of previously authorized resolution plans may ensure
that they are implemented in a viable way when the resolution applicants' finances improve.
Furthermore, if no suitable resolution applicant is found for corporate debtors against whom
CIRP was commenced before March 25, 2020, actions should be made to postpone the
CIRP of such corporate debtors in order to keep them from going into liquidation.
9. The insolvency and bankruptcy proceedings against the corporate borrowers' personal
guarantors must be suspended in the same way that they were suspended for the corporate
debtors. This will help the corporate debtors' personal guarantors to lessen their financial
misery as a result of the epidemic, allowing them to provide better financial assurance to
creditors in the future. Furthermore, it will ensure that the financial interests of the personal
guarantors are balanced with the interests of other stakeholders.
CONCLUSION

9. The image would have been substantially better if the Ordinance had been adopted with the
above-mentioned flaws and uncertainties in mind. However, the Ordinance manages to
maintain the spirit of corporate debtors and companies facing financial difficulties as a result
of the pandemic. The Ordinance was drafted with the specifics of the Code in mind. It is
critical to recognize that the Code is intended to address the misery of individual enterprises
or industries, rather than the anguish caused by the entire economy or an economic crisis.
As a result, the Ordinance cannot help the economy as a whole recover. It will also be
fascinating to see how the NCLT and other agencies, such as the IBBI, respond to any
uncertainties or challenges that may develop in the future as a result of the Ordinance's
implementation. As the AA under the Code, the NCLT would have a significant role to play in
ensuring the seamless implementation of the Ordinance.
Regardless of the Ordinance's flaws, it is critical to recognize that the Code's overall goal is
to save financially viable firms. In the case of Swiss Ribbons Pvt. Ltd. v. Union of India 20,
the Hon'ble Supreme Court examined the Code's Preamble and determined that maximising
the value of corporate debtors' assets is a critical goal of the Code, so that corporate debtors
can be brought back into the economic mainstream and repay their debts. As a result, the
viability of credit in the hands of banks and financial organizations improves. 21
The Code provided essentially two options for mitigating the financial distress caused in the
economy by the pandemic. First, the initiation of CIRP could not have been postponed due
to any debt payment defaults.
It is critical to recognize that all companies are experiencing financial difficulties as a result of
the pandemic. As a result, there aren't enough resolution applicants to save the corporate
debtors who are causing defaults. Thus, the first approach could irreversibly force such
corporate debtors into liquidation, even if they are experiencing temporary hardship as a
result of the epidemic but are financially viable. The second option is what the Ordinance
enacted, allowing all business debtors, whether financially viable or not, to achieve stability
and return to the economic mainstream.
It is conceivable to liquidate non-viable enterprises in the future, but it is not possible to undo
the liquidation of financially viable companies that could have been liquidated if the
Ordinance had not been enacted to postpone CIRP initiation for the defaults listed in the
Ordinance. As a result, the overall impact of the Ordinance is in support of the Code's goal.