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A PIL has been filed in the Madras High Court against the ordinance issued by the government on the 5thof June. The ordinance was triggered on account of the pandemic and the economic distress it bought along with it. The main objective of the ordinance was to suspend the operations of Section 7 (initiation of corporate insolvency resolution process by a financial creditor) , Section 9 (initiation of corporate insolvency process by an operational creditor) and Section 10 (Initiation of corporate insolvency resolution process by corporate applicant) of the Insolvency and Bankruptcy Code, 2016. It also inserted Section 10A which further suspends the initiation of the corporate insolvency resolution process for defaults arising after the 25thof March for a period of 6 months or more but not exceeding 1 year. The purpose was to prevent further distress to the already critical economic crisis.
But the ordinance defeats the main purpose of the code to protect both the debtor and creditor to find solutions to maximization of assets and increase profitability. The situation is favorable to the bigger companies who can survive without business for some amount of time but takes away the chance from the smaller vendors to survive through this period.
The Bench comprising of Chief Justice AP Sahi and Justice Senthilkumar Ramamoorthy has appealed to the Central Government for an appropriate response to the PIL filed. The PIL claims that’s the validity of the newly interested provision of 10A completely defeats the purpose of IBC.
"This is like the government is encouraging the defaulter by such a notification/ ordinance, the right of litigants approaching the IBC is taken away thereby encouraging the defaulters", states the plea.
The petitioner contends that there cannot be a complete embargo on the filing of a petition under Section 7 and 9 under the IBC by such an ordinance.
A plea challenging the ordinance before the Madhya Pradesh High Court is also still pending.
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