2023 (5) TMI 1245 - AT - IBC

Maintainability of insolvency application challenged; prima facie merit found and impugned order stayed pending notice.

Maintainability of an insolvency application is examined with reference to Section 10(A) and the question of date of default; the tribunal found prima ... Date of default - maintainability of Section 7 application - limitation under Section 10A of the Insolvency and Bankruptcy Code, 2016 - distinction between Section 7 and Section 9 proceedings (role of Section 8 notice) - stay of operation of adjudicating authority's orderDate of default - limitation under Section 10A of the Insolvency and Bankruptcy Code, 2016 - maintainability of Section 7 application - Whether the pleaded 'date of default' (01.11.2020) renders the Section 7 application time barred under Section 10A of the IBC and whether that contention can be raised in the first appeal. - HELD THAT: - The Tribunal noted that Part IV of the Section 7 application and an earlier bank letter record the 'date of default' as 01.11.2020. Although this point was not urged before the Adjudicating Authority, the Tribunal accepted that the question is a pure question of law going to the root of the controversy and thus can be raised in the first appeal. Relying on the distinction drawn between Section 9 and Section 7 proceedings (with the observation that the requirement of a Section 8 notice in Section 9 matters cannot be mechanically transposed to Section 7 cases), the Tribunal nonetheless found prima facie merit in the appellant's contention that if the date of default is indeed 01.11.2020 the Section 7 petition may be barred by Section 10A. The Tribunal did not finally decide the issue on merits but considered it sufficiently arguable to require notice and adjudication in the appeal.Prima facie merit found in the appellant's contention about the 'date of default'; appeal admitted for hearing and respondents directed to be served.Stay of operation of adjudicating authority's order - Whether operation of the Adjudicating Authority's order admitting the Section 7 application should be stayed pendente lite. - HELD THAT: - After hearing counsels, the Tribunal, having found prima facie merit in the appellant's legal challenge to the maintainability of the Section 7 petition, directed issuance of formal notice to respondents and ordered that the operation of the impugned admission order dated 18.04.2023 shall remain stayed pending the next date. The Tribunal also directed the appellants to pay requisite process fee for service. The order is interlocutory and intended to preserve rights until the appeal is finally heard.Operation of the impugned order stayed; notice issued for the respondents; appeal fixed for further hearing.Final Conclusion: The Tribunal found prima facie merit in the appellant's contention regarding the pleaded 'date of default' and its impact on the maintainability of the Section 7 petition under Section 10A of the IBC; issued notice to the respondents, stayed the operation of the Adjudicating Authority's admission order dated 18.04.2023, and listed the appeal for further hearing. Issues involved: The appeal challenges the Order admitting an Application under Section 7 by the Respondent UCO Bank for the resolution of a specified amount. The main issue revolves around the 'date of default' mentioned in the application and its implications under the Insolvency and Bankruptcy Code, 2016.Summary:Regarding the 'date of default': The Counsel for the Appellant argued that the application under Section 7 was not maintainable if the 'date of default' was indeed 01.11.2020, citing Section 10(A) of the Insolvency and Bankruptcy Code, 2016. This argument was supported by referencing a Supreme Court decision in the case of 'Ramesh Kymal Vs. Siemens Gamesha Renewable Power Private Limited', which emphasized that the 'date of default' cannot be shifted.Counter-argument by Respondent's Counsel: In response, the Counsel for the Respondent contended that the cited Supreme Court decision was specific to applications under Section 9, where the notice under Section 8 is mandatory. They argued that in applications under Section 7, the 'date of default' is not crucial and can be considered as the date of NPA or the issuance of the recovery certificate by the Debt Recovery Tribunal.Tribunal's Decision: After hearing arguments from both sides, the Tribunal found merit in the Appellant's argument regarding the 'date of default.' Consequently, a formal Notice was issued to the Respondents for further proceedings on 27th June 2023. The Tribunal also ordered the stay of the Impugned Order's operation until further developments.