Providing "breathing time" for companies to recover from coronavirus pandemic-induced financial stress, the government on Thursday extended the suspension of fresh insolvency proceedings under the insolvency law by three months till December 25.
The six-month period of suspension, which was effective from March 25, was to end on Thursday.
According to a notification issued by the corporate affairs ministry, the suspension of fresh proceedings under the Insolvency and Bankruptcy Code (IBC) has been extended for a "period of three months from the 25th September, 2020".
Finance Minister Nirmala Sitharaman's office tweeted that the extension gives companies "breathing time" to recover from financial stress.
"Extension of suspension of sections 7, 9, 10 of the IBC reinforces the Government's commitment to protecting businesses," the tweet said.
She is also in charge of the corporate affairs ministry.
An ordinance was promulgated in June for suspension of fresh insolvency proceedings and the same came into effect from March 25 -- the day when the nationwide lockdown had come into effect.
A bill to replace the ordinance that had amended the IBC was cleared by Parliament on Friday.
The ministry, which is implementing the IBC, has suspended Section 7, 9 and 10 to provide relief for companies reeling under the impact of the pandemic.
Sections 7, 9 and 10 deal with the initiation of corporate insolvency resolution process by a financial creditor, operational creditor and corporate debtor, respectively.
L. Viswanathan, Partner at law firm Cyril Amarchand Mangaldas, said an extension in a calibrated manner, rather than a blanket extension demonstrates the careful wait and watch the approach of the government and confidence that economic conditions could be slowly improving.
