Bar u/s 10A of IBC against initiation of CIRP of a corporate debtor is retrospective: Apex Court

  • Corporate Law
  • financeseva

In the instant case, the Apex Court held that Section 10A of the IBC bars filing for a corporate debtor for arising on or after 25-3-2020. The Bar created is retrospective as a cut-off date has been fixed as 25-3-2020 while newly inserted section 10A introduced through Ordinance has come into effect on 5-6-2020.  

The object of legislation has been to suspend the operation of sections 7, 9 & 10 of the Insolvency and Bankruptcy Code, 2016 in respect of defaults arising on or after 25-3-2020 i.e. The date on which nationwide closure was forced to disrupt normal business operations and affect the economy worldwide. 

Indeed, explanation removes doubt by clarifying that such bar should not work for any default committed prior to 25-3-2020. 

The Court additionally noticed that Section 10A contains no necessity that the Adjudicating Authority should explore whether, and if so how much, the monetary strength of the corporate account holder has been influenced by the beginning of the Covid-19 pandemic. 

Dismissing the plea the Apex Court observed that “The initiation date is referable to the filing of an application by an eligible applicant under IBC, Whereas the commencement date refers to the passage of an order of admission of a request by the Adjudicating Authority. However, the initiation date ascribes a role to eligible applicants whereas the commencement date rests upon exercise of the power vested in Adjudicating Authority.”