Plea challenges IBC (Amendment) Ordinance 2020, Delhi HC issues notice

The Delhi High Court on Tuesday issued a notice to the central government on a petition challenging the constitutional validity of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020, suspending provisions of Section 7, 9 and Section 10 of the Insolvency and Bankruptcy Code, 2016.

The petition, filed by Rajeev Suri through advocate Shikhil Suri, said that the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020, promulgated on June 5, 2020, suspended Sections 7, 9, and 10 of the Insolvency and Bankruptcy Code, 2016.

According to the June 5 ordinance, in view of the pandemic default on repayments from March 25 would not be considered for initiating insolvency proceedings for a certain period.

A bench of Justice DN Patel and Justice Prateek Jalan issued notice to the Union Ministry of Law and Justice and Insolvency and Bankruptcy Board of India and sought a reply till August 31 in the matter.

Additional Solicitor General Chetan Sharma and advocate Amit Mahajan, appearing for Union of India, opposed the petition on the ground of locus of the petitioner and said the plea is not maintainable.

The petition sought directions declaring the suspension of Section 10 vide Insolvency and Bankruptcy Code, (Amendment) Ordinance, 2020 as ultra vires Articles 14 and19(1)(g) of the Constitution of India.

The plea said that the ordinance inserts a new Section 10A. It said that the said ordinance suspending the initiation of the corporate insolvency resolution process under Section 10 by a corporate applicant is irrational, arbitrary, unjust, and malafide.

"The effect of the said Ordinance is to deprive a corporate applicant of its statutory rights under Section 10 and is also violative of Article 14 of the Constitution. The said Ordinance in suspending the provisions of Section 10 of the Code will push the compes towards liquidation, discourage entrepreneurship and defeat the objectives of the Code," the plea said.

It said that the suspension of this section for a period of six months and up to one year would result in further deterioration of the affairs of the corporate debtor and result in making the restructuring/ revival of the corporate debtor unviable.

"This one side sits all approach is contrary to the main objectives of the Code and instead of promoting the objective of maximization of value, will result in defeating the objectives of the code as no restructuring/ revival/ resolution will be now possible," the plea said.

( With inputs from ANI )