Section 10A IBC: COVID-19 Suspension of Insolvency Filings

When the COVID-19 lockdown halted economic activity in March 2020, many otherwise healthy companies could not pay their debts. Allowing creditors to push them into insolvency at a time when few buyers existed would have led to liquidations rather than rescues. Parliament responded by inserting section 10A, which permanently bars insolvency applications for defaults arising during a one year period. This note explains the provision, how the Supreme Court interpreted it, its effect today and the related pandemic measures.

1. Background

Figure 1: The pandemic measures in sequence

• Higher threshold. On 24 March 2020, the Central Government raised the minimum default under section 4 from one lakh to one crore rupees, mainly to protect MSMEs (Topic 19)
• Ordinance. Section 10A was inserted by the Insolvency and Bankruptcy Code (Amendment) Ordinance of 5 June 2020, later replaced by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2020, effective from the date of the ordinance.

2. The Provision

• Main provision. Notwithstanding anything in sections 7, 9 and 10, no application for initiation of CIRP of a corporate debtor shall be filed for any default arising on or after 25 March 2020, for a period of six months or such further period, not exceeding one year from that date, as may be notified.
• Proviso. No application shall ever be filed for initiation of CIRP for the said default occurring during the said period.
• Explanation. The section does not apply to any default committed under sections 7, 9 and 10 before 25 March 2020.
• The period. Extended by notifications first to 24 December 2020 and then to 24 March 2021, the maximum permitted, so the protected period ran from 25 March 2020 to 24 March 2021.
• All three routes. The bar applies to financial creditors, operational creditors and the corporate debtor itself.

Figure 2: Can an application be filed on this default?

3. Section 66(3)

A parallel provision was inserted in section 66, which deals with fraudulent and wrongful trading. Under section 66(3), no application may be filed by a resolution professional against a director or partner of the corporate debtor for wrongful trading in respect of a default against which initiation of CIRP is suspended under section 10A (Topic 51).

4. Ramesh Kymal v Siemens Gamesa Renewable Power, 2021

• Facts. An operational creditor filed a section 9 application on 11 May 2020, after 25 March 2020 but before the ordinance of 5 June 2020, for a default that arose after 25 March 2020; the NCLT and NCLAT held it not maintainable.
• Holding. Decided on 9 February 2021 by D.Y. Chandrachud and M.R. Shah JJ, the Supreme Court dismissed the appeal: section 10A bars applications for defaults on or after 25 March 2020, even if filed before 5 June 2020.
• Reasoning. Reading the main provision with the words shall ever be filed in the proviso and with the Explanation, the cut-off date of 25 March 2020 governs; any other reading would leave debtors who defaulted in the early weeks of the lockdown unprotected and defeat the purpose of the law.
• Purpose. The Court described the pandemic as a cataclysmic event; Parliament feared that resolution applicants would not come forward, pushing companies into liquidation, and the NCLT need not inquire into how the pandemic affected a particular debtor.
• Debt survives. Section 10A does not extinguish the debt or the creditor's other remedies; it bars only the insolvency route for that default.

5. Effect Today

• Permanent bar. Because of the word ever, a default that arose between 25 March 2020 and 24 March 2021 can never found an application under sections 7, 9 or 10, even now.
• Earlier defaults. A default before 25 March 2020 may still found an application, subject to limitation and to the threshold applicable on the date of filing.
• Later defaults. A fresh default after 24 March 2021, such as a later instalment that falls due and is unpaid, may found an application under the ordinary rules.
• Other remedies. Creditors may still sue, use SARFAESI, approach the DRT or arbitrate for defaults in the protected period.
• Limitation. The Supreme Court separately excluded the period from 15 March 2020 to 28 February 2022 for computing limitation in all proceedings, which also affects applications under the Code for other defaults (Topic 18)

6. Other Pandemic Measures

Figure 3: Measures that worked alongside section 10A

The RBI allowed lenders to grant a moratorium on loan instalments falling due between March and August 2020, so many borrowers were not technically in default during that time. In April 2021, as section 10A lapsed, the pre-packaged insolvency process for MSMEs was introduced to give small businesses a faster, debtor-led route to resolution (Topic 21).

7. Frequently Asked Questions

Can a creditor file today for a default that occurred in June 2020?

No. The proviso to section 10A says that no application shall ever be filed for a default occurring during the protected period, which ran from 25 March 2020 to 24 March 2021. The creditor must use other remedies.

Does section 10A apply to a company filing for its own insolvency?

Yes. It overrides sections 7, 9 and 10, so a corporate debtor could not use section 10 for a default in the protected period either.

Was the debt wiped out for defaults in the protected period?

No. The Supreme Court in Ramesh Kymal (2021) noted that section 10A bars only the initiation of CIRP for those defaults; the debt and the creditor's other remedies remain.

8. Related Topics

• Topic 18: Limitation under the IBC. Including the COVID exclusion.
• Topic 19: Minimum Default and Insolvency Commencement Date. The one crore threshold.
• Topic 21: Pre-packaged Insolvency for MSMEs. The 2021 response.