Under the Indian insolvency regime, a company is subject to insolvency proceedings when: (i) it fails to meet its payment obligations and its creditors initiate insolvency proceedings against such company; or (ii) the shareholders of the company voluntarily decide to liquidate the company. Generally, most insolvency proceedings (or related actions in India) are driven by creditors (financial or operational) who initiate insolvency proceedings against defaulting companies.

Currently, there are no COVID 19 exceptions prescribed under the insolvency regime. In other words, a defaulting company cannot take shelter because of the impact the COVID 19 outbreak has had on business operations and will be subject to insolvency proceedings if the creditors opts for such a route. However, as of date (19 March 2020), the Indian government has only recently issued advisories and directions (such as travel restrictions and work from home initiatives), as opposed to the European Governments which have taken much stronger steps due to the widescale COVID 19 outbreak in Europe. The steps being taken by the Indian Government are still at a nascent stage and in our view additional steps will be taken in the next few days/weeks. On a related note, courts / tribunals in India (including the NCLT – the insolvency court in India) have currently reduced operational hours, and the insolvency court (i.e. NCLT) is not accepting any new filings. To that extent there is a defacto moratorium.

From a practical standpoint, and based on past experience, when a specific industry or sector has faced stress due to force majeure causes or natural disasters, the approach of the creditors has been to explore restructuring / refinancing solution, as opposed to initiating insolvency proceedings – this is because such individual creditor actions trigger cross default provisions and could have a cascading effect on the sector. The creditors generally lobby with the central bank or government for a special stimulus or bail-out package on the basis of which individual resolution of loan accounts is done.