Ministry of Corporate Affairs (MCA) Notifies Exceptions for Corporate Debtors under Section 14(1) of IBC[1]

In a significant development, the Ministry of Corporate Affairs (“MCA”) has issued a notification specifying exceptions for Corporate Debtors under Section 14(1) of the Insolvency and Bankruptcy Code, 2016 (IBC). The move aims to bring certain transactions and agreements under its purview while exempting others from triggering the insolvency process for corporate entities. A Corporate Debtor, as defined under Section 3(8) of the IBC, pertains to corporate persons such as companies incorporated under the Companies Act, limited liability partnerships (LLPs) established under the Limited Liability Partnership Act, and any other entity with limited liability, excluding financial services providers like banks and NBFCs.  As per Sections 7 and 9 of the IBC, a Corporate Debtor has typically not been granted the opportunity to be heard until the IBC application is admitted by the Adjudicating Authority.

However, the recent MCA notification brings some respite to Corporate Debtors by identifying specific transactions, arrangements, or agreements that shall not invoke the provisions of Section 14(1) of the IBC. The exemptions outlined in the notification include: 

• Production Sharing Contracts, Revenue Sharing Contracts, Exploration Licenses, and Mining Leases under the Oilfields (Regulation and Development) Act, 1948 (53 of 1948) and its associated rules. 

• Any transactions, arrangements, or agreements, including Joint Operating Agreements, that are connected or ancillary to the transactions, arrangements, or agreements mentioned in clause (i). 

With these exemptions in place, Corporate Debtors engaged in the specified transactions will not face immediate insolvency proceedings under Section 14(1) of the IBC. However, it is important to note that this exemption is applicable only to the transactions and agreements listed in the MCA notification.  This move by the Ministry of Corporate Affairs aims to strike a balance between protecting the interests of Corporate Debtors involved in crucial sectors to ensure continuity of and ensuring the effectiveness of the insolvency resolution process. By providing clarity on the excluded transactions, the government seeks to foster a conducive business environment and maintain the overall stability of the corporate landscape.

[1] https://www.mca.gov.in/bin/dms/getdocument?mds=igjGKv5zktdufUjKGZkigA%253D%253D&type=open