IBC ordinance section encourages defaulters, charges petition

The first bench comprising Chief Justice AP Sahi and Justice Senthilkumar Ramamoorthy, before whom the plea moved by M Gagan Bothra came up for hearing, ordered notice to the Centre returnable in six weeks.

The petitioner highlighted the last paragraph of the section (“Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period”) and submitted that a plain reading indicated that it was totally contrary to the very code itself thereby encouraging defaulters.

“If X gives a loan to Y during the 1st week of April 2020 (during pandemic) for six months and if Y defaults the loan, the above said ordinance implicitly says that the creditor can never file an application under the code against the corporate entity ever in his life, which completely defeats the very provisions of the IBC and the purpose for which it was brought into force,” the petitioner said.

Further, pointing out that there cannot be a complete ban on filing of a petition under Sections 7 and 9 under the IBC Code by such ordinance, the plea submitted that by such a notification / ordinance, the right of litigants approaching the IBC was taken away. This encouraged the defaulters, he contended.