The year-long suspension of the Insolvency and Bankruptcy Code (IBC) for any fresh defaults arising because of COVID-related defaults in these past 12 months comes to an end today.

The Centre has not notified any legislative change to the insolvency amendment law enacted in 2020 that stipulated a maximum period of one year of suspension of the IBC from March 25 last year when the lockdown came into effect. As widely expected, this means that the Centre has allowed the IBC suspension to lapse.

While the IBC remained in suspension for any fresh defaults, only 161 new corporate insolvency resolution processes were initiated between March and September 2020 compared to 889 initiated between March and September 2019.

But what happens now? Will permanent protection of COVID-related defaults from IBC face challenges in court? Are courts equipped to take on burden of fresh cases? Will the bad bank, pre-pack framework change the resolution landscape? Swaminathan J, MD - Risk, Compliance & SARG at SBI, L Viswanathan, Partner at Cyril Amarchand Mangaldas and Suharsh Sinha, Partner at AZB & Partners discuss these issues.

Suharsh Sinha said, “Any further extension will necessary require a legislative change to the code itself which only the parliament can do and the parliament is in session right now but I don’t see this as one of the bills which is being moved by the parliament.”

Swaminathan J said, “Unusual times require unusual steps so this one year of suspension has been under very very special and trying circumstances. In terms of reading defaults on our books we have got to take these two developments into our account and incidentally, the Supreme Court ruling on these COVID related reliefs also came to an end couple of days back so the actual stamping of NPAs and the real default on the books although all the banks including us have been declaring pro forma NPAs, actual default will playout only now as the stamping starts.”

For full interview, watch accompanying video...

(Edited by : Bivekananda Biswas)