CA Final Paper 6D Economic Laws November 2020 Amendments

CA Final Paper 6D Economic Laws November 2020 Amendments

Page | 1 Compiled by CA Sanidhya Saraf



1.COMPETITION ACT,2002

The Competition Commission of India (Procedure in regard to the transaction

of business relating to combinations) Amendment Regulations, 2019,w.e.f. 15th

August,2019

1.Insertion of Regulation 5A : Notice for approval of combinations under Green Channel

(1) For the category of combination mentioned in Schedule III, the parties to such

combination may, at their option, give notice in Form I pursuant to regulation 5 along with

the declaration specified in Schedule IV.

(2) Upon filing of a notice under sub-regulation (1) and acknowledgement thereof, the

proposed combination shall be deemed to have been approved by the Commission

under sub-section (1) of section 31 of the Act:

Provided that where the Commission finds that the combination does not fall under

Schedule III and/or the declaration filed pursuant to sub-regulation (1) is incorrect, the

notice given and the approval granted under this regulation shall be void ab initio and the

Commission shall deal with the combination in accordance with the provisions contained

in the Act:

Provided further that the Commission shall give to the parties to the combination an

opportunity of being heard before arriving at a finding that the combination does not fall

under Schedule III and/or the declaration filed pursuant to sub-regulation (1) is incorrect.”;

Note : Schedule III [See sub-regulation (1) of Regulation 5A]

The Amendment has listed out various criteria in relation to the combinations that

would be eligible to apply through the Green Channel Route in terms of Schedule

III of the Amendment. The eligibility conditions mandate that the parties to a

combination, being the acquirer and the target company and/or their respective group

companies do not have any overlaps, horizontal, vertical or complementary, i.e:

Considering all plausible alternative market definitions, the parties to the combination,

their respective group entities and/or any entity in which they, directly or indirectly, hold

shares and/or control:-

(a) do not produce/provide similar or identical or substitutable product(s) or service(s);

(b) are not engaged in any activity relating to production, supply, distribution, storage,

sale and service or trade in product(s) or provision of service(s) which are at different

stage or level of production chain; and



(c) are not engaged in any activity relating to production, supply, distribution, storage,

sale and service or trade in product(s) or provision of service(s) which are complementary

to each other.

If they fulfils the criteria under Schedule III ,then only green channel Route will be

applicable on them .

Analysis of Regulation 5A

Regulation 5A provides for a "green channel" for obtaining an approval from the CCI

("Green Channel Route") in relation to specified transactions which may constitute a

combination. The CCI has emphasized that the Green Channel Route is predominantly

aimed to sustain and promote a speedy, transparent and accountable review of

combination cases, create a culture of compliance, and support economic growth. The

parties are given a provisional approval to the combination, subject to the CCI

analysing the combination.If any information in the application is incorrect, such

provisional approval shall be void-ab-initio.

2. In regulation 13, of the Competition Commission of India (Procedure in regard to

the transaction of business relating to combinations) Regulations, 2011, following are

the amendments-

(a) For sub-regulation (1A), the following sub-regulation shall be substituted,

namely: - “(1A) A summary of the combination, not containing any confidential

information, in not more than 1000 words, comprising details regarding: (a) name of the

parties to the combination; (b) the nature and purpose of the combination; (c) the products,

services and business(es) of the parties to the combination; and (d) the respective markets

in which the parties to the combination operate, shall be filed for the purpose of publishing

the same on the website of the Commission”;

(b) sub-regulation (1B) shall be omitted.

Note : It’s a factual amendment in Regulation 13 (1A) ,earlier the words were 2000.

2.INSOLVENCY AND BANKRUPTCY CODE, 2016

The Insolvency and Bankruptcy Code (Amendment) Act, 2019

1. Insertion of Explanation to Section 5 (26) -Definition of Resolution Plan

“Explanation.—For the removal of doubts, it is hereby clarified that a resolution

plan may include provisions for the restructuring of the corporate debtor,

including by way of merger, amalgamation and demerger;”



2. Section 7 (4) Initiation of corporate insolvency resolution process by financial

creditor.

New Proviso inserted -Time-bound disposal of the resolution application

The Adjudicating Authority shall, within fourteen days of the receipt of the application

under sub-section (2), ascertain the existence of a default from the records of an

information utility or on the basis of other evidence furnished by the financial creditor

under sub-section (3).

Provided that if the Adjudicating Authority has not ascertained the existence of default

and passed an order under sub-section (5) within such time, it shall record its reasons

in writing for the same.

3. Section 12 Time-limit for completion of insolvency resolution process.

Following provisos have been added after the proviso to section 12 (3) :

Provided further that the corporate insolvency resolution process shall mandatorily be

completed within a period of three hundred and thirty days (330) from the insolvency

commencement date, including any extension of the period of corporate insolvency

resolution process granted under this section and the time taken in legal proceedings in

relation to such resolution process of the corporate debtor.

Provided also that where the insolvency resolution process of a corporate debtor is pending

and has not been completed within the period referred to in the second proviso, such

resolution process shall be completed within a period of ninety days from the date of

commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019

Analysis of the Amendment :

Old Provision : Prior to the Amendment, the Code required that the CIRP should be concluded

within a maximum period of 180 days (with a maximum one-time extension of 90 days) from

the insolvency commencement date. However, many CIRPs were exceeding this overall 270-

day limit on account of legal proceedings initiated either against the corporate debtor, the CoC

or the Resolution Professional.

New Provision : The Amendment provides that the CIRP must mandatorily be completed

within an overall timeline of 330 days from the insolvency commencement date

(including all or any extensions granted as well as any litigations and related legal

proceedings). Additionally, for an ongoing CIRP, in case the 330-day overall timeline has

already been breached at the time the Amendment comes into force, the Amendment provides

for an additional relaxation of 90 days as a transitionary measure.

The use of the words 'mandatory' and 'shall be completed' is a further clear indication to

complete the CIRP in the specified time frame of 330 days without any exception.



4. Section 30(2)(b)- Submission of Resolution Plan

Substitution of the Law : The new law is just gives a more clarity to the distribution

of amount among the creditors.

(b) provides for the payment of debts of operational creditors in such manner as may be

specified by the Board which shall not be less than—

(i) the amount to be paid to such creditors in the event of a liquidation of the corporate

debtor under section 53; or

(ii) the amount that would have been paid to such creditors, if the amount to be distributed

under the resolution plan had been distributed in accordance with the order of priority

in sub-section (1) of section 53,

whichever is higher, and provides for the payment of debts of financial creditors, who do

not vote in favor of the resolution plan, in such manner as may be specified by the Board,

which shall not be less than the amount to be paid to such creditors in accordance with sub-

section (7) of section 53 in the event of a liquidation of the corporate debtor.

Explanation 1.—For the removal of doubts, it is hereby clarified that a distribution in

accordance with the provisions of this clause shall be fair and equitable to such creditors.

Explanation 2.—For the purposes of this clause, it is hereby declared that on and from the

date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019,

the provisions of this clause shall also apply to the corporate insolvency resolution

process of a corporate debtor—

(i) where a resolution plan has not been approved or rejected by the Adjudicating

Authority;

(ii) where an appeal has been preferred under section 61 or section 62 or such an appeal

is not time barred under any provision of law for the time being in force; or

(iii) where a legal proceeding has been initiated in any court against the

decision of the Adjudicating Authority in respect of a resolution plan;”

Analysis of the Amendment : It gives more clarity about the inter-creditor distribution of

payments during CIRP. Prior to the Amendment, the Code provided that payment to

operational creditors under a resolution plan must not be less than the amount that the

operational creditors would have received in a liquidation scenario. But now an appropriate

calculation is given. The Amendment clarifies that the manner of distribution of claims must

take into account the order of priority amongst creditors as specified under the liquidation

waterfall provided under section 53 of the Code, including the priority and value of the security

interest of a secured creditor.

5. Approval of Resolution Plan

Insertion of the following words which increased the scope of resolution plan on

whom it will be binding upon.

If the Adjudicating Authority is satisfied that the resolution plan as approved by the

committee of creditors under sub-section (4) of section 30 meets the requirements as



referred to in sub-section (2) of section 30, it shall by order approve the resolution plan

which shall be binding on the corporate debtor and its employees, members, creditors

**including the Central Government, any State Government or any local authority

to whom a debt in respect of the payment of dues arising under any law for the time

being in force, such as authorities to whom statutory dues are owed, guarantors and

other stakeholders involved in the resolution plan.

** Insertion

Effect of the insertion : Under the Code, once a resolution plan is approved, it is

binding on all stakeholders. It provides that a resolution plan will also be binding on

the Central Government, State Governments or any local authority to whom a debt in

respect of payment of dues is owed. It will result in more fast settlement of debts.

6. Section 33 -Initiation of Liquidation

Section 33 (2)- Where the resolution professional, at any time during the corporate

insolvency resolution process but before confirmation of resolution plan, intimates the

Adjudicating Authority of the decision of the committee of creditors approved by not less

than sixty-six percent of the voting share to liquidate the corporate debtor, the Adjudicating

Authority shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of

clause (b) of sub-section (1).

Addition of an explanation to Section 33 (2)

“Explanation.—For the purposes of this sub-section, it is hereby declared that the

committee of creditors may take the decision to liquidate the corporate debtor, any

time after its constitution under sub-section (7) of section 21 and before the

confirmation of the resolution plan, including at any time before the preparation of the

information memorandum.”

Effect of this explanation – Liquidation of the Corporate Debtor by the CoC

In addition to giving new powers to the CoC to liquidate the corporate debtor, the

Amendment also clarifies the scope of power of the CoC and its role during the CIRP.

Key Takeaway of The Insolvency and Bankruptcy Code (Amendment) Act, 2019

The amendments are mainly focused on revival of corporate debtor by ensuring timely

admission and completion of the resolution process and instilling discipline amongst the

stakeholders to avoid any delay, empowering CoC for better management of the corporate

debtor.

The Insolvency and Bankruptcy Code (Amendment) Act, 2020

Ministry of law and justice notified on 13th March 2020, the Insolvency and

Bankruptcy Code (Amendment) Act, 2020 w.e.f. 28th day of December, 2019.

With the enforcement of this Amendment Act, the Insolvency and Bankruptcy

Code (Amendment) Ordinance, 2019 was hereby repealed or revoked.

1. Section 5 (12) – Definition of Insolvency Commencement Date

“Insolvency commencement date” means the date of admission of an application

for initiating corporate insolvency resolution process by the Adjudicating Authority



under sections 7, 9 or section 10, as the case may be.

Provided that where the interim resolution professional is not appointed in the order

admitting application under section 7, 9 or section 10, the insolvency commencement

date shall be the date on which such interim resolution professional is appointed by

the Adjudicating Authority; (omitted)

Effect : Now, the insolvency commencement date is the date on which application

is admitted by the NCLT.

2. Section 5 (15) -Definition of Interim Finance

“interim finance” means any financial debt raised by the resolution professional

during the insolvency resolution process period and such other debt as may be

notified;

Effect : It has increased the scope of interim finance so that companies can be revived

by getting interim finance ,and will not get liquidated due to shortage of funds. ‘Interim Finance’ essentially refers to short term loans required to keep the Corporate

Debtor under the CIRP as the going concern.

3. Section 7 Initiation of corporate insolvency resolution process by financial

creditor.

Insertion of 3 proviso after Section 7 (1)

Section 7 (1) - A financial creditor either by itself or jointly with other financial

creditors, or any other person on behalf of the financial creditor, as may be notified by

the Central Government, may file an application for initiating corporate insolvency

resolution process against a corporate debtor before the Adjudicating Authority when a

default has occurred.

Proviso 1: Provided that for the financial creditors, referred to in clauses (a) and (b) of

the sub-section (6A) of the section 21, an application for initiating corporate insolvency

resolution process against the corporate debtor shall be filed jointly by not less than

one hundred of such creditors in the same class or not less than ten percent. of the

total number of such creditors in the same class, whichever is less.

Proviso 2 : Provided further that for the financial creditors who are allottees under

a real estate project, an application for initiating corporate insolvency resolution

process against the corporate debtor shall be filed jointly by not less than one

hundred of such allottees under the same real estate project or not less than ten

percent. of the total number of such allottees under the same real estate project,

whichever is less.

Proviso 3 : Provided also that where an application for initiating the corporate

insolvency resolution process against a corporate debtor has been filed by a financial

creditor referred to in the first or second provisos and has not been admitted by the

Adjudicating Authority before the commencement of the insolvency and

Bankruptcy Code (Amendment) Act, 2020, such application shall be modified to



comply with the requirements of the first or second provisos as the case may be within

thirty days of the commencement of the said Act, failing which the application shall

be deemed to be withdrawn before its admission.

Analysis of the Proviso :

I. It specified the criteria as to how many *financial creditors referred to in clause a

and b of Section 21 (6A) can jointly file the application for initiating the CIRP.i.e.

100 or 10 % of such creditors of the same class whichever is less.

* Note : Section 21 (6A) Where a financial debt-

(a) is in the form of securities or deposits and the terms of financial debt provide for

appointment of a trustee or agent to act as authorised representative for all the

financial creditors, such trustee or agent shall act on behalf of such financial creditors;

(b) is owed to a class of creditors exceeding the number as may be specified, other

than the creditors covered under clause (a) or sub-section (6), the interim resolution

professional shall make an application to the Adjudicating Authority along with the

list of all financial creditors, containing the name of an insolvency professional, other

than the interim resolution professional, to act as their authorised representative who

shall be appointed by the Adjudicating Authority prior to the first meeting of the

committee of creditors;

II. It covered the allottees under real estate project under RERA as financial creditors

and criteria for filing the application will be 100 or 10 % of such allottees of the same

real estate project whichever is less.

III. Transition Provision for such applications which have been filed but pending its

approval from NCLT ,they are required to fulfil the revised criteria as of the limit of

financial creditors within 30 days from the commencement of the IBC amendment

Act ,2020 (28th December,2019) failing which the application will be deemed to be

withdrawn before its submission.

Overall idea behind this amendment

According to the existing provision, even one deposit holder or one debenture

holder or one home buyer could have filed an Insolvency application under IBC

Code, which was felt to be effecting the interest of the other creditors or other

home buyers who are allottees in other real estate projects of the same corporate

debtor.

After the said Amendment, a single home buyer or one deposit holder or one

debenture holder cannot file the IBC Case against the builder and disrupt the

Company’s functioning.

WHY ?



4. Section 11 - Persons not entitled to make application

The following persons shall not be entitled to make an application to initiate

corporate insolvency resolution process under this Chapter, namely:—

(a) a corporate debtor undergoing a corporate insolvency resolution process; or

(b) a corporate debtor having completed corporate insolvency resolution process twelve

months preceding the date of making of the application; or

(c) a corporate debtor or a financial creditor who has violated any of the terms of

resolution plan which was approved twelve months before the date of making of an

application under this Chapter; or

(d) a corporate debtor in respect of whom a liquidation order has been made.

Explanation I—For the purposes of this section, a corporate debtor includes a corporate

applicant in respect of such corporate debtor.

Insertion of Explanation 2 to Section 11

Explanation II—"For the purposes of this section, it is hereby clarified that nothing

in this section shall prevent a corporate debtor referred to in clauses (a) to (d)

from initiating corporate insolvency resolution process against another corporate

debtor."

Effect : This step is likely to enhance the maximization of value of a corporate

debtor as it would be now able to recover its debts ,which will ultimately serve the

objective of the code.

The existing provisions were read to make a sense that the corporate debtor was

prohibited from initiating corporate insolvency resolution process against another

corporate debtor, because of which the corporate debtor was not in a position to

file IBC case against its debtors for its debts, even if its receivables were more than

its debts.

FEW ILLUSTRATIONS : Important for MCQs and Descriptive Questions

a) XYZ Limited was facing certain financial issues ,due to which it was

restructured under IBC,2016 and completed its CIRP on 25th July 2019. It has

a debt of 5 Crores to be recovered from ZEBRO Limited .Can it apply for

CIRP against ZEBRO Limited on –

i) 25th March,2020

ii) 30th June,2020

iii) 25th August,2020

Answer : The answer is yes in all the three dates as the IBC Amendment 2020 has

come into place w.e.f. 28th December,2019 .Therefore, if a corporate debtor having

completed corporate insolvency resolution process twelve months preceding the date



of making of the application ,it was not allowed to file an application for CIRP but

now it has been amended, so XYZ Limited can file for CIRP against ZEBRO

Limited.

b) Liquidation order is being passed against Piramal Limited .Can it file for

CIRP against its debtor “DEF” Limited ?

Answer : YES (Refer amendment)

5. Section 14 – Moratorium

Section 14

1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement

date, the Adjudicating Authority shall by order declare moratorium for prohibiting all

of the following, namely:—

(a) the institution of suits or continuation of pending suits or proceedings against the

corporate debtor including execution of any judgment, decree or order in any court of

law, tribunal, arbitration panel or other authority;

(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of

its assets or any legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest created by the

corporate debtor in respect of its property including any action under the Securitisation

and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(d) the recovery of any property by an owner or lessor where such property is occupied

by or in the possession of the corporate debtor.

Explanation – For the purposes of this sub- section, it is hereby clarified that

notwithstanding anything contained in any other law for the time being in force, a

license, permit, registration, quota, concession, clearances or a similar grant or right

given by the Central Government, State Government, local authority, sectoral

regulator or any other authority constituted under any other law for the time being in

force, shall not be suspended or terminated on the grounds of insolvency, subject

to the condition that there is no default in payment of current dues arising for the

use or continuation of the license, permit, registration, quota, concession, clearances or

a similar grant or right during the moratorium period;

Insertion of New Explanation below :

IMP FOR EXAMS



Analysis : This amendment clarifies that a license, permit, registration, quota,

concession, clearances or a similar grant or right cannot be terminated or

suspended during the Moratorium period SUBJECT TO THERE IS NO DEFAULT

IN PAYMENT OF CURRENT DUES.

In some cases when the CIRP is initiated against the Corporate Debtor, the

Government Authorities start cancelling the permit, licenses granted to them during

the CIRP period. This makes it very difficult for the Insolvency Professional or the

Resolution Professional to once again obtain the required permits, license or

registration etc. to run the business even after they take over the Management of the

Company. Therefore, to remove these difficulties faced ,the necessary amendments

have been carried out. The newly inserted explanation to Section 14(1) instills the

hopes of a Corporate Debtor facing CIRP, and advances the intent of IBC to

preserve the status of a CD as a going concern.

(2) The supply of essential goods or services to the corporate debtor as may be specified

shall not be terminated or suspended or interrupted during moratorium period.

(2A) Where the interim resolution professional or resolution professional, as the case

may be, considers the supply of goods or services critical to protect and preserve the

value of the corporate debtor and manage the operations or such corporate debtor as a

going concern, then the supply of such goods or services shall not be terminated,

suspended or interrupted during the period of moratorium, except where such

corporate debtor has not paid dues arising from such supply during the

moratorium period or in such circumstances as may be Specified.

Analysis: It means that supply of the critical goods and services will not be

suspended but the corporate debtor has to make payment for such critical supplies

DURING THE MORATORIUM PERIOD. If it fails to make payment for such

critical supplies, it might get terminated.

Few Illustrations :

a) ABC Limited has entered into CIRP on 25th July 2020.The company didn’t pay

the electricity bill for past 2 months due to which electricity supply company

is forced to stop the electricity supply.

i) Can electricity company do so ?

ii) Will your answer in part a change, if ABC Limited is not paying the

electricity bill during the moratorium period?

iii) The company paid Rs. 5,00,000 towards the electricity bill for the

moratorium period. The company previous dues were Rs.75,000/- The

electricity supply company want to adjust previous dues from the bill

paid during the moratorium period .Can it do so, if not why?

Insertion of Section 2A below :



Hint to Answer :

i) The electricity company can’t cut the critical supply during

moratorium period.

ii) If ABC limited is not paying electricity bill during the

moratorium period too, the Electricity supply can be

terminated. (Amendment)

iii) The previous dues can’t be adjusted from amount received

during the moratorium period by the electricity company. For

the previous dues recovery, they have to follow the distribution

procedure as mentioned in the code and be in line with other

operational creditors.

(3) The provisions of sub-section (1) shall not apply to such transactions as may be

notified by the Central Government in consultation with any financial sector

regulator. (Old Law Substituted by New one )

(3) The provisions of sub-section (1) shall not apply to-

(a) such transactions, agreements or other arrangements as may be notified by the

Central Government in consultation with any financial sector regulator or any

other authority; (New one)

Note : To avoid the misuse of the new explanation added to 14 (1) i.e This

amendment clarifies that a license, permit, registration, quota, concession, clearances

or a similar grant or right cannot be terminated or suspended during the

Moratorium period SUBJECT TO THERE IS NO DEFAULT IN PAYMENT OF

CURRENT DUES. The central government will notify such transactions

,agreements whereby the new explanation will be applicable.

(b) a surety in a contract of guarantee to a corporate debtor.

(It was already in the section ,it simply means that any guarantee given by the

third party in favour debt of the corporate debtor can be invoked ,if corporate

debtor fails to pay the debt. Moratorium will not apply to the guarantor and later

on the guarantor can recover the paid amount from the corporate debtor.)

Example : The MD of NYL limited gave guarantee in favour of loan from the bank .In

any case ,the company didn’t repay the loan ,the guarantee will be invoked and MD

will be personally liable to pay the loan to the bank.

(4) The order of moratorium shall have effect from the date of such order till the

completion of the corporate insolvency resolution process:

Provided that where at any time during the corporate insolvency resolution process

period, if the Adjudicating Authority approves the resolution plan under sub-section (1)

of section 31 or passes an order for liquidation of corporate debtor under section 33,



the moratorium shall cease to have effect from the date of such approval or

liquidation order, as the case may be.

6. Section 16 (1) – Appointment and tenure of interim resolution professional.

The Adjudicating Authority shall appoint an interim resolution professional on the

insolvency commencement date. within fourteen days from the insolvency

commencement date.

Effect : It has been done to expedite the CIRP as to IRP will be appointed on the

same date as when the insolvency commences i.e. the date on which the application

is admitted by NCLT ,so it has removed the 14 days window period now.

7. Section 21 (2) – Committee of Creditors

The committee of creditors shall comprise all financial creditors of the corporate debtor:

Provided that a financial creditor or the authorised representative of the financial

creditor referred to in sub-section (6) or sub-section (6A) or sub-section (5) of section

24, if it is a related party of the corporate debtor, shall not have any right of

representation, participation or voting in a meeting of the committee of creditors.

Provided further that the first proviso shall not apply to a financial creditor,

regulated by a financial sector regulator, if it is a related party of the corporate debtor

solely on account of conversion or substitution of debt into equity shares or

instruments convertible into equity shares * or completion of such transactions as

may be prescribed,, prior to the insolvency commencement date.

* Such transaction will be given by the Central Govt.

Illustration for understanding : Let’s suppose a bank who had given a loan of

Rs.50 Lakhs to the corporate debtor. For that loan, if the bank gets equity shares.

Will the bank become a related party and can’t takes decision in CoC ?

The answer is NO. Bank will not become a related party solely on account of

conversion of debt into equity. It can take representation in CoC.

8. Section 29 A – Persons not eligible to be resolution applicant

Clause c and Clause j (Same Explanation )

Explanation I.-For the purposes of this proviso, the expression “related party’ shall not

include a financial entity, regulated by a financial sector regulator, if it is a financial

creditor of the corporate debtor and is a related party of the corporate debtor solely on

account of conversion or substitution of debt into equity shares or instruments

convertible into equity shares or completion of such transactions as may be

prescribed, prior to the insolvency commencement date.



Effect : If a financial creditor is a related party solely on account of account of

conversion or substitution of debt into equity shares or instruments convertible into

equity shares or completion of such transactions , prior to the insolvency

commencement date. ,then in such a case that financial creditor would not be taken as

a related party. It means such persons are eligible to be resolution applicant.

9. Insertion of new Section 32 A – Liability for prior offences etc

(1) Notwithstanding anything to the contrary contained in this Code or any other law

for the time being in force, the liability of a corporate debtor for an offence

committed prior to the commencement of the corporate insolvency resolution

process shall cease and the corporate debtor shall not be prosecuted for such an

offence from the date the resolution plan has been approved by the Adjudicating

Authority under section 31, if the resolution plan results in the change in the

management or control of the corporate debtor to a person who was not-

(a) a promoter or in the management or control of the corporate debtor or a related party

of such a person; or

(b) a person with regard to whom the relevant investigating authority has, on the basis

of material in its possession, reason to believe that he had abetted or conspired for the

commission of the offence, and has submitted or filed a report or a complaint to the

relevant statutory authority or Court:

Provided that if a prosecution had been instituted during the corporate insolvency

resolution process against such corporate debtor, it shall stand discharged from the date

of approval of the resolution plan subject to requirements of this sub-section having

been fulfilled:

Provided further that every person who was a “designated partner” as defined in clause

(j) of section 2 of the Limited Liability Partnership Act, 2008 or an “officer who is in

default”, as defined in clause (60) of section 2 of the Companies Act, 2013, or was in

any manner in-charge of, or responsible to the corporate debtor for the conduct of its

business or associated with corporate debtor in any manner and who was directly or

indirectly involved in the commission of such offence as per the report submitted or

complaint filed by the investigating authority, shall continue to be liable to be

prosecuted and punished for such an offence committed by the corporate debtor

notwithstanding that the corporate debtor’s liability has ceased under this sub-section.

(2) No action shall be taken against the property of the corporate debtor in relation to

an offence committed prior to the commencement of the corporate insolvency

resolution process of the corporate debtor, where such property is covered under a

resolution plan approved by the Adjudicating Authority under section 31, which results

in the change in control of the corporate debtor to a person, or sale of liquidation assets

under the provisions of Chapter III of Part II of this Code to a person, who was not-

(i) a promoter or in the management or control of the corporate debtor or a related party

of such a person; or



(ii) a person with regard to whom the relevant investigating authority has, on the basis

of material in its possession, reason to believe that he had abetted or conspired for the

commission of the offence, and has submitted or filed a report or a complaint to the

relevant statutory authority or Court.

Explanation.- For the purpose of this sub-section, it is hereby clarified that,-

(i) an action against the property of the corporate debtor in relation to an offence shall

include the attachment, seizure retention or confiscation of such property under such

law as may be applicable to the corporate debtor;

(ii) nothing in this sub-section shall be construed to bar an action against the property

of any person, other than the corporate debtor or a person who has acquired such

property of any person, other than the corporate debtor or a person who has acquired

such property through corporate insolvency process or liquidation process under this

Code and fulfils the requirements specified in this section, against whom such an action

may be taken under such law as may be applicable.

(3) Subject to the provisions contained in sub-section (1) and (2), and notwithstanding

the immunity given in this section, the corporate debtor and any person, who may be

required to provide assistance under such law as may be applicable to such corporate

debtor or person, shall extend all assistance and co-operation to any authority

investigating a offence committed prior to the commencement of the corporate

insolvency resolution process.

Analysis of Section 32A

Insolvency and Bankruptcy Code (Second Amendment) Bill, 2019, introduced Section

32A IBC to provide Resolution Applicant, a fair chance to revive Corporate Debtor

without imposing additional liabilities on Resolution Applicant .

Prior to the insertion of section 32A, a successful Resolution Applicant faced the

problems of prosecution and liabilities for prior acts of Corporate Debtor before courts

and tribunals. Thus, there was a need to protect Corporate Debtor from its prior offences

and to revive the Corporate Debtor by removing problems faced by successful

Resolution Applicant.

Section 32A provides that Corporate Debtor shall not be prosecuted for an offence

committed prior to commencement of Corporate Insolvency Resolution Process (CIRP)

once Resolution Plan has been approved by Adjudicating Authority (AA).

It provides that no action shall be taken against property of Corporate Debtor

covered under such a Resolution Plan. However, 32A continues to hold liable every

person who was a 'designated partner' or an 'officer who is in default' or was in any

manner in-charge of, or responsible to Corporate Debtor for conduct of its business or

associated in any manner and who was directly or indirectly involved in commission of

such offence.

Section 32A envisages that once Resolution Plan is approved by the Adjudicating

Authority after completion of CIRP, there cannot be attachment or confiscation



of assets of Corporate Debtor, as otherwise same will defeat objects of the Code. It

is to be noted that 'investigating authority' has not been defined under Code but from

purview of Section 32A it may be any authority carrying out investigation under

prevailing statutes, in relation to an action against property of Corporate Debtor for an

offence or an action against property of a promoter or a person in management or

control of Corporate Debtor or a related party of such a person who had abetted or

conspired for commission of offence.

1. Enhancement in the limit of amount of default: Ministry of Corporate Affairs

vide notification S.O. 1205(E) dated 24th March, 2020, in exercise of the

powers conferred by the proviso to section 4 of the Insolvency and Bankruptcy

Code, 2016, the Central Government hereby specifies one crore rupees as the

minimum amount of default for the purposes of the said section.

Note : Previously ,this minimum amount was ₹ 1 Lakh only.

2. Section 2 (e) Application of this code - The provisions of this Code shall apply

to Personal guarantors to corporate debtors in relation to their insolvency,

liquidation, voluntary liquidation or bankruptcy, as the case may be.

Note : The Central Government hereby appoints the 1st day of December,2019

as the date on which clause (e) of section 2 of the Code in so far as they relate

to personal guarantors to corporate debtors, shall come into force.

3. Applicability of IBC ,2016 on NBFC : Under section 227 of the IBC, the

Central Government is empowered in consultation with the financial service

regulator to make the provisions of the IBC applicable to financial service

providers or certain categories of financial service providers. The Central

Government in consultation with the Reserve Bank of India notifies that the

insolvency resolution and liquidation proceedings of the Non-banking

finance companies (which include housing finance companies) with asset

size of Rs.500 crore or more, as per last audited balance sheet, shall be

undertaken in accordance with the provisions of the Insolvency and Bankruptcy

Code, 2016 read with the Insolvency and Bankruptcy (Insolvency and

Liquidation Proceedings of Financial Service Providers and Application to

Adjudicating Authority) Rules, 2019 and the applicable Regulations.

Other Amendments

MUST DO



Analysis of applicability of IBC,2016 on selected NBFCs

Financial service providers are ordinarily not covered under the Insolvency and

Bankruptcy Code. Under the rules notified, the code can be invoked to find a resolution

for stressed finance companies such as Dewan Housing Finance Corporation Ltd.

(DHFL). These rules will not apply to banks.

The Rules are a positive step and will help creditors of financial service providers who

are in distress recover a portion of their debt if a suitable resolution plan is in place. The

IBC is a proactive legislation and it should help reduce the problems faced by creditors

in recovering debt from asset-rich corporate debtors / financial service providers in

distress. Detailed regulations are still to be notified.

3. Prohibition of Benami Property Transaction Act, 1988

1. Applicability of the Act : In section 1(2) of the Act which deals with the extent of an

applicability of the Prohibition of Benami Property Transactions Act, 1988, the words

contained "except the State of Jammu and Kashmir" omitted by the Jammu and

Kashmir Reorganisation Act, 2019, dated 9-8-2019, w.e.f. 31-10-2019

Effect : The act is now applicable to whole of India including Jammu and Kashmir.

2. Amendments through Finance Act, 2020

Section 9 : Qualifications for appointment of Chairperson and Members

In the Prohibition of Benami Property Transactions Act, 1988, in section 9, in sub-

section (1), for clause (b), the following clause shall be substituted with effect from the

1st day of April, 2020, namely:—

“(b) (i) has been a member of the Indian Legal Service and has held the post of Joint

Secretary or equivalent post in that Service; or

(ii) is qualified for appointment as District Judge.”.

Effect : It just increased the scope of persons who can be appointed as chairperson

or members of the adjudicating authority.

3. Section 23 -Power of authority to conduct inquiry, etc

The Initiating Officer, after obtaining prior approval of the Approving Authority,

shall have power to conduct or cause to be conducted any inquiry or investigation in

respect of any person, place, property, assets, documents, books of account or other

documents, in respect of any other relevant matters under this Act.

The following Explanation shall be inserted and shall be deemed to have been

inserted with effect from the 1st day of November, 2016, namely:––



[Explanation.—For the removal of doubts, it is hereby clarified that nothing

contained in this section shall apply and shall be deemed to have ever applied where

a notice under sub-section (1) of section 24 has been issued by the Initiating Officer.

Analysis of the explanation added :

24. (1) Where the Initiating Officer, on the basis of material in his possession, has

reason to believe that any person is a Benamidar in respect of a property, he may, after

recording reasons in writing, issue a notice to the person to show cause within such

time as may be specified in the notice why the property should not be treated as benami

property.

It clearly indicates that Section 24(1) overrides section 23 ,i.e. if the Initiating

officer has sufficient evidence for a property to be called as benami or person to

be Benamidar, in that case there is no need for him to get an approval from

approving authority.

4. Section 24 - Notice and attachment of property involved in benami transaction

Insertion of Explanation to the Section

[Explanation.—For the purposes of this section, in computing the period of limitation,

the period during which the proceeding is stayed by an order or injunction of any court

shall be excluded:

Provided that where immediately after the exclusion of the aforesaid period, **the period

of limitation referred to in sub-section (4) available to the Initiating Officer for passing

order of attachment is less than thirty days, such remaining period shall be deemed to be

extended to thirty days.

Interpretation : It is simply saying that in computing the period of 90 days, if any

stay order comes in between ,such period will be excluded and after removal of stay

order ,if that remaining period is less than 30 days, then such remaining period shall

be deemed to be extended to thirty days.(Note : It is extended to thirty days ,not by

thirty days.there is a difference between by and two)

Eg. 90 days are getting over on 25.05.2020 , Stay removed on 10.05.2020 then in such

case ,the remaining period is 15 days,so it will be extended to 30 days i.e. 14.06.2020

,not 30 days after 25.05.2020

** The period of limitation under sub section 4 is within a period of ninety days from

the last day of the month in which the notice under sub-section (1), the Initiating

officer has to pass an order with respect to continuation or revocation of Provsional

attachment of property after approval of prior authority.

Provided further that where immediately after the exclusion of the aforesaid period,

***the period of limitation referred to in sub-section (5) available to the Initiating

Officer to refer the order of attachment to Adjudicating Authority is less than seven days,

such remaining period shall be deemed to be extended to seven days.]



Interpretation : It is simply saying that in computing the period of 15 days,if any stay

order comes in between ,such period will be excluded and after removal of stay order

,if that remaining period is less than 7 days, then such remaining period shall be

deemed to be extended to seven days.( Note : It is extended to thirty days ,not by

thirty days.there is a difference between by and two)

*** The period of limitation under sub section 5 is within fifteen days from the date of

the attachment, draw up a statement of the case and refer it to the Adjudicating

Authority.]

5. Section 26 (7) - Adjudication of benami property (Insertion of a

explanation) In section 26 of the principal Act, in sub-section (7), with effect from the 1st day of

September, 2019, the following Explanation shall be inserted, namely:-—

“Explanation.—For the purposes of this sub-section, in computing the period of

limitation (one year under 26 (7) , the period during which the proceeding is stayed by

an order or injunction of any court shall be excluded.

Provided that where immediately after the exclusion of the aforesaid period, the period

of limitation available to the Adjudicating Authority for passing order is less than sixty

days, such remaining period shall be deemed to be extended to sixty days.”.

Note : It is same as amendment in Section 24 w.r.t. to limitation period.Do refer that

with examples in detail.

Documents

CA Final Paper 6D Economic Laws November 2020 Amendments