Delhi High Court issues notice to the Central Government on a Petition challenging the suspension of Section 10 of IBC, 2016

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 10 of the Insolvency and Bankruptcy Code 2016.

On June 5, Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 had suspended Section 7,9 and 10 IBC on account of COVID-19 for a period of six months starting March 25, 2020.

A Division Bench of Chief Justice DN Patel and Justice Prateek Jalan issued notice to the Union Ministry of Law and Justice and Insolvency and Bankruptcy Board of India. The petition, which is the nature of a public interest litigation, has been filed by Rajiv Suri.

Under Section 10 IBC, a corporate applicant could initiate corporate insolvency resolution process in respect of a default committed by itself.

It is the Petitioner's case that suspending the initiation of corporate insolvency resolution process under Section 10 by a corporate applicant is irrational, arbitrary, unjust, and malafide.

The Petitioner states that the suspension of Section 10 IBC would deprive a corporate applicant of an opportunity to revive, reorganize, and resolve itself and its debts in a time-bound manner.

Consequently, companies would be pushed into liquidation and civil litigation, defeating the objectives of IBC, it is apprehended.

That suspension of this Section for a period of 6 months and up to 1 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 Petition argues.

It is thus contended that the suspension of Section 10 IBC violates the rights of a corporate debtor under Articles 14 and 19(1)(g) of the Constitution.

The Petitioner has also highlighted that the Ordinance takes away the vested right of the corporate applicant with a retrospective effect which is invalid and is liable to be quashed.

ASG Chetan Sharma and Standing Counsel Amit Mahajan raised issues of maintainability of the petition. The Court, however, directed them to submit the same by way of the Centre's response to the petition.

The matter would be heard next on August 31, 2020.