Insolvency and Bankruptcy Code Ordinance, 2018

Venerable President of India Ram Nath Kovind on 6^th June, 2018 has assented to promulgate the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018.

Important Point of Ordinance

Its provide relief to home buyers by recognizing their status as financial creditors by giving them due representation in the Committee of Creditors and make them an integral part of the decision making process.

It will also enable home buyers to invoke Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016 against errant developers. Section 7 allows financial creditors to file application seeking Insolvency Resolutions process.

It also empowers the Central Government to allow further exemptions or modifications with respect to the MSME in public interest because MSME consider as backbone of Indian Economy and biggest employment generator.

Withdrawal of application after its admission under IBC 2016  would be permissible only with the approval of the Committee of Creditors with 90 percent of the voting share.  Furthermore, such withdrawal will only be permissible before publication of notice inviting Expressions of Interest (EoI).  In other words, there can be no withdrawal once the commercial process of EoIs and bids commences. Separately, the Regulations will bring in further clarity by laying down mandatory timelines, processes and procedures for corporate insolvency resolution process.  Some of the specific issues that would be addressed include non-entertainment of late bids, no negotiation with the late bidders and a well laid down procedure for maximizing value of assets.

Now for all major decision such as approval of Resolution Plan, Extension of CIRP period etc, voting threshold has been brought down to 66 percent from 75%.  Further, in order to facilitate the corporate debtor to continue as a going concern during the CIRP, the voting threshold for routine decisions has been reduced to 51%.

The Ordinance provides for a minimum one-year grace period for the successful resolution applicant to fulfill various statutory obligations required under different laws.  This would go a long way in enabling the new management to successfully implement the resolution plan.

Ordinance a succinct:

Promulgation of ordinance by president is not a discretionary power, and he can promulgate or withdraw an ordinance only on the advice of the council of ministers headed by the prime minister.

Article 123 of the Constitution empowers the President to promulgate ordinances during the recess of Parliament.

Recess of Parliament means when both the Houses of Parliament are not in session or when either of the two Houses of Parliament is not in session. An ordinance can also be issued when only one House is in session because a law can be passed by both the Houses and not by one House alone. An ordinance made when both the Houses are in session is void.

Some Interesting fact about Ordinance

In Cooper case 1970 the SC held that President satisfaction can be questioned in a court on the ground of malafide. (The 38th Constitutional Amendment Act of 1975 made the Presidents satisfaction final and conclusive and beyond judicial review. But, this provision was deleted by the 44th Constitutional Amendment Act of 1978. Thus, the Presidents satisfaction is justiciable on the ground of malafide.)

This means that the decision of the President to issue an ordinance can be questioned in a court on the ground that the President has prorogued one House or both Houses of Parliament deliberately with a view to promulgate an ordinance on a controversial subject, so as to bypass the parliamentary decision.

Every ordinance issued by the President during the recess of Parliament must be laid before both the Houses of Parliament when it reassembles. If the ordinance is approved by both the Houses, it becomes an act. If Parliament takes no action at all, the ordinance ceases to operate on the expiry of six weeks from the reassemble of Parliament.

The ordinance may also cease to operate even earlier than the prescribed six weeks, if both the Houses of Parliament pass resolutions disapproving it.

Maximum life of an ordinance can be six months and six weeks, in case of non-approval by the Parliament (six months being the maximum gap between the two sessions of Parliament).

If an ordinance is allowed to lapse without being placed before Parliament, then the acts done and completed under it, before it ceases to operate, remain fully valid and effective.

Ordinance may come into force from a back date. It may modify or repeal any act of Parliament or another ordinance. It can alter or amend a tax law also. However, it cannot be issued to amend the Constitution.

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