• Legis Scriptor

The Impact of the COVID –19 Pandemic on the Insolvency & Bankruptcy Code

Authored by Nikhita Abigail

Keywords: Covid-19, Insolvency and Bankruptcy Code, Insolvency and resolution process, Amendments.


The fact that the Covid-19 pandemic has had disastrous effects on the Indian economy is an unnecessary reminder. However, the government has not left its citizens without reprieve. In light of this unprecedented situation, the government has taken many steps to amend legislation to ensure its citizens are provided with relief. About working professionals and business owners, significant amendments have been made to the Insolvency and Bankruptcy Code, 2016. This article aims to list and analyze these amendments.


On the 5th of June, 2020, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 [1] became effective immediately, across the country. The amendments which took place, along with other relevant changes brought about by various government notifications as a result of the pandemic, are mentioned below:

1. Deferral of Insolvency Proceedings

Previously, sections 7, 9, and 10 provided financial and operational creditors, as well as corporate debtors themselves, the ability to file applications for a corporate insolvency resolution process (CIRP), in case of a default. However now, a new Section 10A has been inserted into the Insolvency and Bankruptcy Code whereby applications against corporate debtors for initiations of a CIRP are prohibited for all defaults arising after the 25th of March, 2020.

This suspension period is to last for 6 months but may be extended up to a period of one year. The new section has provided added protection to businesses and enterprises that can now concentrate their efforts on their business operations instead of being on pins and needles during this pandemic.

It is to be noted that the bar on sections 7, 9, and 10 are not applicable on those applicants seeking to initiate a CIRP on defaults before the 25th of March, 2020.

2. Shelving of Fraudulent or Wrongful Trading Provision

Section 66 of the Insolvency and Bankruptcy Code entails that a resolution professional may make an application to the Adjudicating Authority to pass an order which would direct that, any persons who were consciously aware that business was being conducted fraudulently are liable to make contributions to the assets of the corporate debtor. As per the addition of a new section, section 66(3), a resolution professional can no longer make an application to this end, in respect of a default which is suspended under section 10A.

3. Increased Default Threshold Amount

Section 4 of the Insolvency and Bankruptcy Code specifies what the minimum amount of default should be, to commence a CIRP. The amount which was formerly INR 1 Lakh has now been increased to INR 1 Crore according to a notification by the Ministry of Corporate Affairs dated the 24th of March, 2020 [2]. The aforementioned notification does not state a period of applicability for this amendment and hence this new threshold amount will continue to hold true not just during the pandemic, but after it as well.

4. Lockdown Period to be excluded from CIRP Timelines

Section 12 of the Insolvency and Bankruptcy Code states that a corporate insolvency resolution process is to be completed within a time frame of 330 days. However, Suo moto taking action, the National Company Law Appellate Tribunal (NCLAT) by an order dated 30th March 2020 [3] in Company Appeal (AT) (Insolvency) No. 01 of 2020, has declared that the duration of the lockdown caused due to Covid-19 will be excluded from the 180 days in cases where CIRP related activity could not be completed as a result of the said lockdown. The order further stated that any interim order/stay order passed by the Appellate Tribunal under the Insolvency and Bankruptcy Code would continue till the next date of hearing.

The exemption of the lockdown period was inserted in Regulation 40C in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 by a notification dated 29th March 2020 [4].

5. Special and Prepackaged Insolvency Resolution Frameworks

While it has not yet come to fruition, to ensure the protection of micro, small and medium enterprises (MSMEs), a new framework for MSMEs is to be brought about under section 240A of the Insolvency and Bankruptcy Code [5]. According to The Economic Times, [6] a pre-packaged resolution is one where a company prepares a restructuring plan in cooperation with its creditors before initiating insolvency proceedings. This is said to reduce the time and costs involved in the process.

Analysis of Amendments

While the efforts of the government might be well-intended, the amendments to the Insolvency and Bankruptcy Code raise some primary concerns. In the case of suspension of Insolvency proceedings, while the fact that financial and operational creditors cannot commence a CIRP is reasonable, a closer observation of the new provision might prove to be troublesome for a corporate debtor, who is now barred from filing a CIRP voluntarily. The autonomy of a struggling business may be compromised as they are prevented from restructuring their debt which could lead to attrition of the value of their assets.

Therefore, it would perhaps be more beneficial to companies and enterprises if corporate debtors were excluded rather than included in the suspension of Insolvency proceedings. Additionally, Operational creditors fearing for their interests might be hesitant to contribute to businesses knowing that they will have no recourse under the Insolvency and Bankruptcy Code in case of a default. The threshold limit being increased to INR 1 crore would also make it difficult for them to initiate a CIRP since operational creditors rarely conduct business with such large amounts.

Further, the lack of clarity provided by section 10A begs one to wonder whether parties might wield the said provision to their advantage by using it as a crutch to escape the consequences of any defaults by claiming that there existed connections between the reason for the default and happenings during the exempted period.

The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 also fails to provide an opportunity to current CIRP’s to present amended resolution valuations or plans before the Adjudicating Authority, which would seem reasonable considering the ongoing economic scenario.


While government efforts to alleviate damages caused by the Covid-19 Pandemic with respect to the Insolvency and Bankruptcy Code are significant and commendable, it still needs to be seen how these added provisions will be interpreted by the courts. There is also a need for these amendments to be reexamined in order to ensure that they are not just benefitting debtors but that they also sufficiently balance the needs of the creditors.


1. June 2020. Ministry of Law and Justice. The Gazette of India. [online] Available at: <> [Accessed 4 October 2020].

2. March 2020. Ministry of Corporate Affairs. The Gazette of India. [online] Available at: <> [Accessed 4 October 2020].

3. March 2020. The National Company Law Appellate Tribunal. Suo Moto - Company Appeal (AT) (Insolvency) No. 01 Of 2020. [online] Available at: <> [Accessed 4 October 2020].

4. March 2020. Insolvency and Bankruptcy Board of India. [online] Available at: <> [Accessed 4 October 2020].

5. The Economic Times. 2020. Special Insolvency Resolution Framework for MSMEs At Advanced Stage: IBBI Chief. [online] Available at: <> [Accessed 4 October 2020].

6. Noronha, G., 2020. Pre-Packaged Insolvency Resolution Framework for MSMEs Soon, Say Officials. [online] The Economic Times. Available at: <> [Accessed 4 October 2020].