Status as on- 20/11/2020

QUESTION INVOLVED

The National Company Law Appellate Tribunal (NCLAT), New Delhi, dismissed an appeal by upholding the impugned order of the NCLT, Chennai that the introduction of section 10-A vide an Ordinance dated 25^th March 2020 is retrospective in nature thereby making it clear that the bar on initiation of the CIR Proceedings would not operate in respect of applications filed in respect of the defaults committed before 25^th March 2020.

THE FACTS

The controversy arose in respect to the dismissal of the section 9 application filed by the Operational Creditor against the Corporate Debtor for a default which took place on April 30, 2020. However, in view of the Ordinance dated June 5, 2020 promulgated by the Central Government barring insolvency against the Corporate Debtors under the provisions of Section 7,9 and 10 of the code, the NCLT dismissed the said application on the ground that the Ordinance was applicable retrospectively to the defaults arising on or after March 25, 2020.

In view of the submissions made before the Appellate Tribunal, the NCLAT observed that a plain reading of the newly inserted Section 10A creates no dilemma in understanding that the Section began with a non-obstante clause and placed an embargo on filing of Insolvency application for any default arising on or after March 25, 2020 for a period of six months or such further period as may be notified.

Furthermore, the NCLAT noted the definition of ‘initiation date’ and ‘commencement date’, and stated that there was no scope for initiation of corporate insolvency resolution process for any default arising on or after 25th March, 2020 as Section 10A clearly barred filing/ initiation of such applications.

FINDINGS

The NCLAT finally concluded by relying on the explanation of  Section 10-A, that the bar on initiation would not operate in respect of applications filed in respect of default committed before March 25, 2020 though such application might have been filed after the cut-off date. The NCLAT very succinctly held that “Such interpretation not only serves the object of basic legislation but also goes along the tone and tenor of Section 10A with the explanation appended thereto clarifying the mist, if any, surrounding, the newly inserted provision. We hold accordingly.“

Conclusion-

Since, the default occurred after the cut-off date, the NCLAT held that the bar imposed under Section 10A was clearly attracted. Therefore, it would be appropriate to state that the bar created is retrospective as the cut-off date has been fixed as 25th March, 2020 while the newly inserted Section 10-A introduced through the Ordinance has come into effect on 5th June, 2020. The object of the legislation has been to suspend operation of Sections 7, 9 & 10 in respect of defaults arising on or after 25th March, 2020 i.e. the date on which Nationwide lockdown was enforced disrupting normal business operations and impacting the economy globally.

Disclaimer: The above article is based on the interpretation of the related laws and judicial pronouncements. The readers are expected to take legal advice before relying on this article. The author can be reached at support@centrik.in