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Due to the over 60-day lockdown demanded by the Covid-19 pandemic, several businesses, especially the MSMEs, have suffered humongous monetary loss. In a developing country like ours, a res integra situation of the like, will only hamper and dampen the growing economy, leading to various disturbances amongst the people. Therefore, with a view to revive and strengthen the MSMEs, which are often regarded as huge contributors to the Indian economy, the President of India, promulgated The Insolvency And Bankruptcy Code (Amendment) Ordinance, 2020, on the 5th day of June, 2020. Prior to the instant Ordinance, the Union Finance Minister, Ms. Nirmala Sitharaman, announced an economic package of 20,000 crores for the MSMEs and also a breather by the way of suspending Sections 7, 9 and 10 of The Insolvency and Bankruptcy Code, 2016. In furtherance of the same, the instant ordinance was promulgated by the President of India.
The instant Ordinance adds to The Insolvency and Bankruptcy Code, 2016, a new section, viz. Section 10A. This section states that no application can be made or preferred to initiate corporate insolvency resolution process against a corporate debtor, for a default which arises on or post the 25th day of March, 2020, for a term of six months or more, but not exceeding one year. It also states that corporate insolvency resolution process can never be initiated against a corporate debtor for his default which occurred during the said period. It insulates the corporate debtors, completely. This Ordinance does not apply to defaults or corporate debtors which arose prior to the 25th day of March, 2020. Therefore, financial and operational creditors can file applications thereby initiating corporate insolvency resolution process against the corporate debtor, only if the default arose before the said date.
Also, vide the instant Ordinance, a sub-section has been added, viz sub-section (3) of Section 66 of The Insolvency and Bankruptcy Code, 2016. This provision states that a resolution professional cannot file an application with respect to the default that arose after the 25th day of March, 2020.

Authored by:
Vishnu P.V
Advocate

In an economy wherein, transactions between suppliers and buyers are several and numerous, an instance might occur wherein the buyer of the goods or services, does not pay the agreed upon consideration or value of the goods or services availed by him, to the supplier. To insulate such a supplier, and also reprimand the buyer defaulting with his payments, an authority, namely, the “Micro and Small Enterprises Facilitation Council” was brought in by the Micro, Small and Medium Enterprises Development Act, 2006.

According to Section 15 of this Act, when a supplier, who is registered as a micro or a small enterprise, supplies any goods or renders any services to a buyer, the buyer must make the payment for the said goods or services, as the case maybe, on or before the date which is agreed to in writing by the parties, or if there is no such agreement, then before the appointed day, which is within 15 days from the day of acceptance or the day of deemed acceptance of the goods or services, as the case may be. Such period agreed to by the parties in writing, must not exceed 45 days from the day of acceptance or the day of deemed acceptance.

Section 16 of the Act states that, if the buyer fails to make payment of the amount to the supplier, as mandated under Section 15 of the Act, the buyer shall, irrespective of what is contained in any agreement between the supplier and the buyer, or in any law, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day, or as the case may be, from the date immediately following the date agreed to, at three times the bank rate notified by the Reserve Bank of India.

Section 18 of the Act states that, any party to a dispute can make a reference to the Micro and Small Enterprises Facilitation Council. The mode of settlement to be employed by the Facilitation Council shall be conciliation, an amicable method of Alternative Dispute Resolution. The Facilitation Council can either conclude the conciliation by itself or refer it to a suitable institution for the same. If the process of conciliation goes in vain, the Facilitation Council, shall then employ arbitration as the method of settlement of the dispute in hand. The arbitration proceedings can either be concluded by the Facilitation Council itself or referred to a suitable institution for the same. Such references of disputes by parties to the Facilitation Council, shall be adjudicated and decided within 90 days from the date of making such references.

Section 19 of the Act states that, if an order or decree, delivered in a dispute, by the Facilitation Council, either by way of conciliation or arbitration, is challenged by the aggrieved party (not being the supplier) by making an application to the Court, he must first deposit with it 75% of the amount decided by the Facilitation Council, in its order or decree. The Court shall order a percentage of such amount to be paid to the decree-holder, which shall depend on the facts and circumstances of the case.

Sub-rule (iv) of Rule 3 of the Karnataka State Micro and Small Enterprises Facilitation Council Rules, 2018, states that, the State Government may specify any fee and for processing charges paid while filing application.

Sub-rule (i) of Rule 7 of the Rules, provides that, an aggrieved Micro or Small Enterprise unit can move a reference to the Facilitation Council which has jurisdiction of the area, in the format provided as Schedule-1 of these Rules. The said reference must contain the Udyog Aadhar Memorandum (UAM) number, mobile number and e-mail address of the aggrieved Micro or Small Enterprise unit as provided in Schedule-1.

The Micro and Small Enterprises Facilitation Council is of much relief to the micro and small enterprises in our country, as it helps them to avoid the long delays and huge Court fees, in case they had to approach an ordinary Court of law, for the recovery of money.

Authored by:
Adv VISHNU P.V
Associate,
MENTO ASSOCIATES

Non-Performing Asset or NPA, is a term which is used to refer to a situation when the banks or financial institutions are unable to retrieve the principal or interest from the advances or loans made by them to the borrowers. The term was used extensively in the case of Dr. Vijay Mallya, as he could neither pay back the principal amount nor the interest accrued on the same, to the banks and financial institutions, which he had borrowed from. Let us now study the concept of a Non-Performing Asset (NPA) in brief.

Non-Performing Asset (NPA) is a kind of a loan wherein the principal amount or the interest amounts are paid late or have not been paid by the borrower to the lender. In other words, if the customers do not repay the principal amount and the interest amount, for a certain period of time, then such loans are considered as Non-Performing Assets (NPAs). Non-Performing Assets (NPAs) are Non-Performing Loans. For an asset to be classified as a Non-Performing Asset (NPA), it takes a period of 90 days for the banks to do so, in India. Until 2004, the stipulated period for classifying a regular or standard account as a Non-Performing Asset, was 180 days. The said period was modified from 180 days to 90 days, keeping in mind the international norms and rules on the concept of classifying a regular account as a Non-Performing Asset (NPA).

Non-Performing Assets (NPAs) are classified into four types, depending on the possibility and probability of their recovery, namely,
1) Standard Assets: These are a kind of performing assets which create continuous income and repayments as and when they become due. They carry a normal risk and are not Non-Performing Assets (NPAs) in the real sense. No special provisions are needed for standard assets.
2) Sub-Standard Assets: These are loans which are in the nature of Non-Performing Assets (NPAs) for a period of 12 months.
3) Doubtful Assets: Assets which are non-performing for a period of over 12 months, fall under this category.
4) Loss Assets: Assets which are incapable of being recovered by the lending institutions, fall under this category.

When the defaulter or borrower pays to the bank the sums due from his end, whether it is the interest accrued on the advance or the principal amount itself, the bank will modify or convert such a Non-Performing Asset (NPA) back to a regular or standard account. Therefore, for a Non-Performing Asset (NPA) to become good or a regular account, all the dues must be paid by the borrower to the bank. This concept of regularisation is an incentive, since it encourages the borrowers to clear their dues with the banks, and restore their advances as regular accounts.

Authored by:

Advocate VISHNU PV

Associate