Updated: Mar 30

Author: Srijaa Grover*

Editor: Neelakshi Bhaskar

Introduction to the Amendment Act

On September 23, 2020, the Government enacted the Act of Insolvency and Bankruptcy Code (Second Amendment). It was enforced on June 5, 2020. It was initially introduced to counter the financial pressure that the private sector was facing, as well as the economic distress that followed the coronavirus pandemic.

Companies were forced to shut down operations intended for a period of time due to the country's lockdown. This Amendment Act was included as part of the "Atmanirbhar" package, which was designed to help businesses on the verge of bankruptcy. The Amendment Act added Sections 10A and 66(3) to the Act to provide a shield to the companies in times of financial difficulty. The Amendment alters sections 5, 7, 11, 14, 16, 21, 23, 29A, 32A, 227, 239, and 240 of the Act[i].

Highlights of the Amendment Act

The new clause, which is part of Section 4 of the Code, deals with the threshold requirement for filing a code application. According to the government's notification, the threshold limit was set at Rupees One Lakh, but it has now been raised to Rupees One Crore, a 100-fold increase.

A creditor or an individual representing the interests of a financial creditor who has been notified by the government may file an application for corporate insolvency resolution under section 7 of the Code. A sub-section (3) was also added to Section 66 of the code, which states that under sub-section (3), no application shall be filled out by a resolution specialist.

Relaxation from unlawful trading with respect to applications of the corporate debtor and where the commencement of the insolvency resolution process is suspended is provided with the insertion of Subsection (3). The Code has now been made applicable to the Union Territory of Jammu and Kashmir pursuant to the Jammu Kashmir Reorganization (Adaptation of Central Laws) Order, 2020. The insertion of Sub-section provides relief from wrongful dealing with respect to applications of corporate debtors and where the insolvency resolution process is suspended. The Jammu Kashmir Reorganization (Adaptation of Central Laws) Order, 2020 has made the Code applicable to the Union Territory of Jammu and Kashmir. In extension, the addition of Section 10A suspends the application of IBC Sections 7, 9, and 10.

The main goal of this amendment is to help defaulters who are suffering from financial hardship as a result of the pandemic. The Court held in Vashdeo R Bhojwani v. Abhyudaya Cooperative Bank Ltd, Civil Appeal No. 11020 Of 2018, that a debt owed to a bank that is in default is not considered a continuing wrong.

It was found that in cases of default resulting from a Debt Recovery Certificate, the duty to pay and the violation of that obligation are both retained on the date of default, and thus the cause of action cannot be considered to be ongoing throughout the time of non-payment[ii].

Creditors will be relieved by the Amendment Act because the new clause, Section 10A, will not apply to the users if they are in default before March 25, 2020, and therefore it is appropriate in this scenario.

Applicability and Analysis

According to Section 10A of the amendment, there was some doubt about the date from which the six-month duration could be counted. The arbitrating body has been tasked with interpreting this. The six-month period can begin on March 25, 2020, or on the date of the default. Since the situation differs from case to case, there are several benches of the Adjudicating Authority, which allows for different interpretations of the same provision.

The number that would be considered in default under Section 4 of the Code, which was increased from 1 lakh to 1 crore, is also unclear under this Amendment Act. The question then becomes, "What will be the course of action if part of the default occurred before March 25, 2020, and the rest occurred on or after March 25, 2020?"

Will, a corporate debtor, be entitled to come under the ambit of Section 10A of the Amendment Act, or will the corporate debtor be entitled to file an application to begin CIRP, as per usual practice, if the majority amount of default occurs before March 25, 2020, and the residual amount of default occurs after March 25, 2020? For example, if a default of 85 lakhs occurred on March 3, 2020, and subsequent default of 15 lakhs occurred on April 1, 2020, what is the applicability of such a default?

Along the same lines, if corporate debtor defaults during the exempted period, the provisions of Section 10A of the Ordinance would cover it. However, if the debtor commits another default against the same creditor, the question arises, will the default amount from the exempted time be applied to the default amount from the subsequent period? But, whether the amendment applies prospectively, retrospectively, or indefinitely, we don't know.


The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 has provided opportunities for change, but it has also raised new concerns. Security, enforcement, and defaults, as well as their implementation, have created a hazy image. The industry will now find it impossible to recover its debts from debtors, resulting in a downward spiral. The government has taken a significant step in raising awareness about the effects of the Coronavirus pandemic, which is both commendable and necessary.

However, the Amendment Act's drafting has caused uncertainty among businesses, with a variety of consequences. The issue that arises and will continue to be debated is if such debts will be classified as covered under section 10A after restructuring or whether they will fall outside of its scope. The effect of this Amendment Act will be that the Adjudication Authority and the courts will spend precious time determining the application, time period, default number, and other details for each and every case.

As a result, the courts and the mechanism of corporate insolvency resolution will be burdened even more. In the upcoming times, a clarification from the concerned government is expected and the Insolvency and Bankruptcy Board of India. Lenders in the corporate and debtors will now have to explore a variety of opportunities and potentials for settling as well as resolving the debts for which no insolvency proceedings could be filed or secured under Section 10A.

True, the Amendment Act has dispelled many previously held concerns and paved the way for a simple and fast resolution mechanism under the Code; nevertheless, all have flaws and can be viewed as a blessing or a bane, which may or may not always benefit all stakeholders. Considering an example of the implementation of a minimum threshold for real estate allottees can be seen as an example. We may assume that the changes included in the Amendment Act are a step forward in terms of achieving successful enforcement of the Code and eliminating the barriers that stand in the way.

REFERENCES: [i] 2021. Insolvency And Bankruptcy Code (Amendment) Act, 2020: A Step Forward - Insolvency/Bankruptcy/Re-structuring - India. [online] Available at: <> [Accessed 29 March 2021].

[ii] Vashdeo R Bhojwani vs Abhyudaya Co Operative Bank Ltd on 2 September, 2019 Indian Kanoon,

*The Author is a BBA LL.B student at Vivekananda Institute of Professional Studies, Delhi

Disclaimer: The opinions and views in this article are personal and independent opinions of the author. VAIDHA doesn't hold any liability arising out of this article.

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