Section 10A of IBC bars CIRP in respect of default post March 25, 2020 even if CIRP application filed before 10A was introduced: Supreme Court

The Supreme Court on Tuesday ruled that Section 10A of the Insolvency and Bankruptcy Code (IBC) bars initiation of Corporate Insolvency Resolution Process (CIRP) with respect to a default which occurred on or after March 25, 2020 even if the application for CIRP was filed before June 5, 2020 when Section 10A was inserted in the statute book (Ramesh Kymal vs Siemens Gamesa Renewable Power Pvt Ltd)..A Bench of Justices DY Chandrachud and MR Shah noted that expression "shall ever be filed" under Section 10A inserted through an ordinance on June 5, 2020, was a "clear indicator that the intent of the legislature is to bar the institution of any application for the commencement of the CIRP in respect of a default which has occurred on or after 25 March 2020 for a period of six months, extendable up to one year as notified"..The case before the Supreme Court was of an employee who had a claim of ₹ 104 crores upon his resignation. After he furnished his resignation in January, he was requested to continue till April, 2020 as notice period.Though the individual raised a claim while he was in service in March, it was in April, three days before his date of leaving that he was terminated and the amount was not paid..The individual filed an application under Section 9 of the IBC to recover his due. However, during the pendency of his litigation, an ordinance was promulgated by the President of India in June 2020 by which Section 10A was inserted into the IBC.The organisation claimed that his claim was barred as per Section 10A of IBC. The same was upheld by both NCLT and NCLAT..The Supreme Court noted that the question before it was whether the provisions of Section 10A would 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 occurred after March 25, 2020.The Supreme Court upheld the NCLAT order and ruled that the onset of the Covid-19 pandemic was "a cataclysmic event which has serious repercussions on the financial health of corporate enterprises".."The Ordinance and the Amending Act enacted by Parliament, adopt 25 March 2020 as the cut-off date. The proviso to Section 10A stipulates that "no application shall ever be filed" for the initiation of the CIRP "for the said default occurring during the said period”, the Court said. .It further clarified that the expression "shall ever be filed" is a clear indicator that the "intent of the legislature is to bar the institution of any application for the commencement of the CIRP in respect of a default which has occurred on or after 25 March 2020 for a period of six months, extendable up to one year as notified.".An explanation was also introduced to Section 10A which gave clarified the position beyond doubt. The explanation stated as follows: "For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any default committed under the said sections before March 25, 2020.".The substantive part of Section 10A is to be construed harmoniously with the first proviso and the explanation, the Court said. "Reading the provisions together, it is evident that Parliament intended to impose a bar on the filing of applications for the commencement of the CIRP in respect of a corporate debtor for a default occurring on or after March 25, 2020; the embargo remaining in force for a period of six months, extendable to one year," the Bench made it clear. .The correct interpretation of Section 10A, the Court ruled, cannot be merely based on the language of the provision. Rather it must take into account the object of the ordinance and the extraordinary circumstances in which it was promulgated..However, the court also clarified that the retrospective bar on the filing of applications for the commencement of CIRP during the stipulated period does not extinguish the debt owed by the corporate debtor or the right of creditors to recover it. .Senior Advocate Neeraj Kishan Kaul represented the appellant whereas the respondent company was represented by Senior Advocate Gopal Jain..[Read judgment]