Applicability of section 10A of Insolvency and Bankruptcy Code: Prospective or Retrospective?

A Division Bench of the Supreme Court comprising of justices Dr. Dhananjaya Y. Chandrachud and M. R. Shah in the case of Ramesh Kymal v. Siemens Gamesa Renewable Power Private Limited, REED 2021 SC 02503, held that Section 10A of the Insolvency and Bankruptcy Code, 2016 (IBC) barred filing the application for the commencement of the Corporate Insolvency Resolution Process (CIRP) in respect of a Corporate Debtor for a default occurring on or after 25 March 2020 even if such application was filed before Section 10A was inserted on 5 June 2020. The Apex Court also held that the retrospective bar on the filing of application for the commencement of CIRP during the stipulated period does not extinguish the debt owed by the Corporate Debtor of the right of creditors to recover it.

The facts of this case are that on 11 May 2020 the Appellant had filed an application for initiation of CIRP under section 9 on the ground that there was default committed by Respondent on 30 April 2020 in payment of his operational dues. During the pendency of the application, an ordinance was promulgated by the President of India on 5 June 2020 by which Section 10A was inserted into the IBC. Section 10A created a bar on applications filed under section 7, 9, or 10, as the case may be, in relation to default committed on or after 25 March 2020 and therefore NCLT dismissed the plea and the same was upheld by the NCLAT. Hence, the present appeal has been filed before the Supreme Court.

The main issue that arose for the consideration of the court was whether the provisions of section 10A stand attracted to an application under section 9 which was filed before 5 June 2020, the date on which the provision came into force, in respect of a default which has occurred after 25 March 2020.

The Supreme Court noted that Justice G.P. Singh in his authoritative commentary on the interpretation of statutes, Principles of Statutory Interpretation (First Edition 2015, Lexis Nexis) has stated that the language of the provision is not always decisive to arrive at a determination whether the provision if applicable prospectively or retrospectively; rather it must take into account the object of the Ordinance and the extraordinary circumstances in which it was promulgated. In the present case, the date of 25 March 2020 has consciously been provided by the legislature in the recitals to the Ordinance and Section 10A, since it coincides with the date on which the national lockdown was declared in India due to the onset of the Covid-19 pandemic. Hence, the provision, if applied prospectively, would leave a whole class of Corporate Debtors where the default has occurred on or after 25 March 2020 outside the pale of protection because the application was filed before 5 June 2020, thereby defeating the objective of the Ordinance contained in its preamble.

The Supreme Court also observed that the legislature was cognizant that in light of the COVID-19 pandemic, resolution applicants might not come forth to participate in insolvency resolution procedures leading to Corporate Debtors going under liquidation and no longer remaining a going concern. This would be antithetical to the very aim of the IBC as held in the case of Swiss Ribbons Private Limited. v. Union of India, REED 2019 SC 01504. Therefore, the Hon'ble Supreme Court held that Section 10A shall include defaults committed by corporate debtors arising on or after 25 March 2020 including cases filed before 5 June 2020. Accordingly, for the foregoing reasons, the court dismissed the present appeal.