The government has decided to amend the IBC (Insolvency and Bankruptcy Code), 2016 by suspending the provisions that results in insolvency proceedings against defaulters, for a period upto one year. This will act as a relief measure for corporate borrowers affected by the COVID-19 pandemic as well as pave the way for banks to restructure loans.
- In this regard, an ordinance would be promulgated to suspend three sections of IBC viz. Section 7, 9 and 10 for six months, if the current situation continues beyond April 30, 2020, and the suspension time can be extended up to one year based on the economic situation.
- The effective date of the amendments coming into force would be the date of promulgation of the ordinance.
–Section 7 pertains to initiation of corporate insolvency proceedings by a financial creditor.
–Section 9 pertains to initiation of corporate insolvency proceedings by an operational creditor, respectively.
–Section 10 relates to filing an application for insolvency resolution by a corporate.
As per existing norms, if a payment default exceeds 90 days then the lender has to refer the account for resolution under IBC or any other mechanism permitted by the Reserve Bank of India (RBI). The lender does not have the option to restructure the loan.
About IBC, 2016:
Passed in May 2016, it is the bankruptcy law of India for the existing framework of insolvency and bankruptcy. It aims to protect the interests of small investors and make the process of doing business effective and efficient.
- It was introduced by Late Arun Jaitley.