Plea against Insolvency Code ordinance; HC seeks Centre stand

On Tuesday, the High Court of Delhi sought the Central Govt’s reply on a plea challenging the Insolvency & Bankruptcy Code (IBC) Ordinance which suspended proceedings against defaults arising on or after March 25 for 6 months in view of the Coronavirus pandemic.

A bench of Chief Justice D N Patel & Justice Prateek Jalan issued notice to the Ministry of Law & the Insolvency & Bankruptcy Board of India (IBBI) seeking its stand by Aug 31 on the petition which seeks setting aside of the amendment made in the IBC by the ordinance

Centre’s standing counsel Amit Mahajan, appearing for the ministry, opposed the plea saying it was not maintainable. 

Amit Mahajan said the petitioner — Rajeev Suri — has been unable to show his locus for filing the instant Public Interest Litigation.

Rajeev Suri, in the plea filed through Lawyers Shiv Kumar Suri & Shikhil Suri, has contended that the ordinance suspending the initiation of insolvency resolution process under IBC was “irrational, arbitrary, unjust, & mala fide” as it deprives a corporate applicant of its statutory rights.

The plea said that “In these extraordinarily difficult times for businesses, suspension of section 10 of IBC (which provides for initiation of insolvency proceedings) was irrational, displays haste, is illogical, & unjustified”.

It alleged that suspension of section 10 of IBC will push the companies towards liquidation, discourage entrepreneurship & defeat the objectives of the Code.

The plea has contended that the ordinance “should be struck down” as its is “manifestly arbitrary” & violates the right of equality under the Constitution

According to the IBC Ordinance issued on June 5, default on repayments from March 25, the day when the nationwide lockdown began to curb the spread of coronavirus infections, would not be considered for initiating insolvency proceedings for a certain period of time.

Insolvency proceedings would not be initiated for “any default arising on or after March 25, 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf”, the ordinance has said.

Under the IBC, an entity can seek insolvency proceedings against a company even if the default is only for one day. This is subject to the minimum threshold of Rs 1 crore. Earlier, the threshold was Rs 1 lakh.