PIL filed in Madras High Court moved against amendment to insolvency code

A PIL has been filed in the Madras High Court challenging a Central ordinance amending the Insolvency and Bankruptcy Code (IBC) wherein fresh insolvency proceedings will not be initiated for defaults on account of the coronavirus pandemic.

When it came up for hearing, first bench of Chief Justice A P Sahi and Justice Senthilkumar Ramamoorthy directed Additional Solicitor General R Sankaranarayanan to get instructions from the authorities concerned in six weeks after he opposed the petition, saying the amendment was only a temporary measure in view of COVID-19 lockdown.

Petitioner M Gagan Bothra, a city-based financier, in his public interest litigation petition challenged the ordinance promulgated by the government on June 5 amending the IBC, saying it would go against the very object of the code.

The ordinance was unconstitutional, ultra vires and against the principles and the reason which led to the enforcement of the code, he contended.

As per the amendment, default on repayments from March 25, the day when the nationwide lockdown began to curb coronavirus infections, would not be considered for initiating insolvency proceedings for a certain period of time.

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

ASG Sankaranarayanan objected to the petition being moved as a PIL. The amendment has been brought through the ordinance only in view of the pandemic and it is only for a temporary period specified in the amendment, he said.

He added that IBC was not a legislation for recovery of money for which the petitioner or any aggrieved person can move an appropriate suit in a civil court.

Making it clear that the suspension of provision for moving insolvency applications against corporate defaulters is only temporary, the ASG sought the court to grant him time to file a counter to the plea after getting due instruction from the authorities concerned.

(Photo Credit: PTI)