Impact of COVID-19 on Insolvency and Liquidation Process


This post has been written by Vanshika Darbari, a third year law student of Maharaja Agrasen Insitute of Management Studies, GGSIPU.

Insolvency and Bankruptcy Code was established in 2016 with an objective to consolidate and amend laws relating to reorganization and insolvency resolution of corporate persons in a manner that the maximum value can be derived from the assets of such corporate entities.

Earlier there was no period mentioned in the code for the completion of the reorganization and insolvency resolution process of a corporate person, due to these difficulties being faced due to lack of clarity on the time required to be devoted to the process of a corporate person. On consideration of these difficulties faced in this process, the IBBI Vide Notification dated 03.07.2019 inserted regulation 40A in Insolvency Resolution Regulation,2016 which provided a model timeline for the corporate insolvency resolution process.

Regulation 47 was then added on 25.07.2019 which provided the time required to be devoted by a liquidator on any particular process forming part of the liquidation process of a corporate person.

Due to the spread of COVID-19, a nationwide lockdown was first imposed for 21 days on 24.03.2020 which further was extended till 30.05.2020. From 1.04.2020 onwards the lockdown has been imposed in containment zones and some states. This imposition of lockdown brought the entire process of Corporate Insolvency Resolution as well as liquidation to a standstill. Section 12 of the Code provides that the process shall be completed in 180 days and 2nd proviso of Section 12 mandates that the process shall be completed within 330 days from the included extended period as well time taken in legal proceedings. It became impossible to meet the timelines mentioned under these sections. To solve this problem, the IBBI and NCLT took steps to face the situation arisen due to COVID-19. The IBBI on 23.03.2020 notified the exclusion of the period of lockdown imposed by the central government due to the COVID 19 outbreak from the corporate insolvency resolution process.

In the meantime, the NCLT ordered that the period shall be excluded for the purpose of counting the period of the resolution process if the office of the corporate debtor is in the part of the country where the lockdown is imposed either by the Central Government or by the State Government.

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Initially, the minor contradiction in IBBI notification and NCLT order does not have any impact as there was nationwide lockdown but confusion started in extending such benefits to those corporate debtors whose offices are situated in the containment zones. As per the NCLT order dated 30.05.2020, the corporate debtors whose offices are outside the containment zones can not claim such exclusion.

Relaxation in Computation of the Period for Completion of Liquidation Process 

The regulation 47A was inserted via a notification dated 17th April, 2020.

47A. Exclusion of period of lockdown  

Subject to the provisions of the Code, the period of lockdown imposed by the Central Government in the wake of the COVID-19 outbreak shall not be counted for computation of the time-line for any task that could not be completed due to such lockdown, concerning any liquidation process.

There were several confusions regarding the date from which the relaxation should be given as the regulation came on 17.04.2020 and the lockdown was imposed on 24.03.2020. The IBBI regulation overlooked the period from 24.03.2020 to 16.04.2020 in calculating the time in completion of various tasks of the liquidation process.

The aforesaid issue was then considered by NCLT, Chandigarh Bench. An application was made to the bench on 11.05.2020 by a resolution applicant, who approached NCLT seeking exclusion of the whole lockdown period while calculating the due date of payments. The Bench, after taking into consideration the matter passed an order on 30.03.2020 that the entire period i.e. from the date of imposition of lockdown by the Government till the reopening of National Company Law Tribunal, Chandigarh Bench, on regular basis, after the removal of lockdown, be excluded.


The exclusion period for calculating the Insolvency process will be from the first date of lockdown till the NCLT bench opens regularly. Thus, the period. This period may differ from one bench to another as different benches may resume their functioning on different dates.




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