NCLAT allows Section 7 application including interest accrued during Section 10A moratorium period for threshold calculations

The NCLAT allowed an appeal against rejection of a Section 7 application filed below the threshold limit. The Adjudicating Authority had rejected the application by deducting interest amounts that accrued during the Section 10A moratorium period from the total debt calculation. The NCLAT held that where default was committed prior to the Section 10A period and continued thereafter, proceedings under Section 7 were not barred. Interest liability accruing during the moratorium period on pre-existing defaults should be included in threshold calculations as Section 10A does not obliterate continuing liability. The Adjudicating Authority was directed to pass fresh orders admitting the Section 7 application within 30 days.

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Issues Involved:
- Threshold limit for filing Section 7 application under the Insolvency & Bankruptcy Code, 2016.
- Interpretation of Section 10A regarding the suspension of initiation of corporate insolvency resolution process.

Summary:
The judgment by the National Company Law Appellate Tribunal, New Delhi, involved an appeal against the rejection of a Section 7 application by the Adjudicating Authority. The Appellant claimed to be the Financial Creditor of the Corporate Debtor and filed the application under Section 7 for a debt and default amounting to Rs.1,00,59,922, including principle and interest. The Adjudicating Authority rejected the application citing that it was filed below the threshold limit specified by a Ministry of Corporate Affairs notification.

The Appellant challenged the rejection, arguing that the threshold was met as the total amount was clearly stated in the application. They also provided an interest calculation sheet, showing the amount due as per a settlement agreement with the Corporate Debtor. The Respondent contended that the interest accrued during a specific period covered by Section 10A should not be included in the threshold calculation.

The Tribunal examined the provisions of Section 10A, which suspend the initiation of insolvency resolution processes for defaults during a specified period. It clarified that if a default occurred before the Section 10A period and continued during it, proceedings could still be initiated. Referring to previous judgments, the Tribunal held that the liability of interest accrued during the Section 10A period should not be ignored in determining the threshold for the application.

Ultimately, the Tribunal found that the Adjudicating Authority erred in rejecting the Section 7 application and allowed the appeal. It directed the Authority to reconsider the application within 30 days, providing an opportunity for the parties to settle the matter during this period.

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