2023 (5) TMI 983 - AT - Insolvency and Bankruptcy

Successful Appeal under Section 61 of Insolvency Code Revives Section 7 Application

Indiabulls Housing Finance Limited Versus Revital Realty Private Limited

The appeal under Section 61 of the Insolvency & Bankruptcy Code was successful as the Tribunal found the application filed within the limitation ... Initiation of CIRP - time limitation - date of default - whether the original application filed by the Appellant under Section 7 of the Code before the Adjudicating Authority was within limitation time frame in accordance with the Limitation Act, 1963 or it was time barred as observed by the Adjudicating Authority based on which the Application was dismissed? HELD THAT:- The debt is defined under Section 3(11) of the Code and ‘default’ has been defined under Section 3(12) of the Code, debt has been defined as a liability or obligation in respect of a claim which is due and default means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor/ Corporate Debtor. It is observed from Section 7(1) of the Code that the Financial Creditor may file an application for initiating CIRP when the default has occurred. It is not necessary for the Appellant to file an application under Section 7 of the Code, on the happening of first default of amount due and it is discretion of the Financial Creditor to decide filing an Application under Section 7 as per the facts and his legal rights - the Financial Creditor do not initiate on many occasions the proceeding for CIRP against the Corporate Debtor on the first date of default itself although it is his legal right as provided in the Code and the law. From Schedule II of the Loan Account, it is seen that there has been moratorium on payment of principal amount and only on 19.09.2017 the principal amount became due and payable - the Appellant could have taken legal recourse under the Code either on 19.08.2018 or on subsequent defaults or when entire loan became due, payable and defaulted i.e. on 28.03.2022. It is noted that in the present case, the Appellant has chosen 28.03.2022 as date of default in the application filed under Section 7 of the Code before the Adjudicating Authority. The Corporate Debtor defaulted the payment of the instalment for the month of July 2018 which was due and payable on 19.08.2018 which could be treated as an event of default in terms of Clause 12.1.1 of the Loan Agreement i.e., non-payment according to which, if the borrower (‘Corporate Debtor’) does not pay by the due date(s) the borrower’s dues or part thereof and/ or any amount payable pursuant to loan document, the same will be treated as event of non- payment. Similarly, Clause 12.2 of the Loan Agreement describes consequence of an event of default. It is therefore, clear the date of default could have been taken as 19.08.2018 in terms of various clauses of Loan Agreement - The Financial Creditor gets rights for filing an Application under Section 7 of the Code when the right to apply against default accrues and for every default there is a fresh period of limitation. It seems that the Adjudicating Authority has taken the date of 09.05.2016 as the date of default presuming that the first instalment was due, payable and not paid and therefore date of default became 09.05.2016. Either of the date i.e. 19.08.2018 i.e., the date on which the instalment was due, resulting into default payable and not paid or the date of 28.03.2022 when the entire loan account stood defaulted in terms of Loan Recall Notice dated 25.03.2022, would have been and is covered within the limitation period as discussed in the preceding paragraphs. The Adjudicating Authority clearly erred in taking the date of default as 09.05.2016 for computing the limitation for filing the Section 7 Application - this Appellate Tribunal has no hesitation in holding that the impugned order was incorrect and is set aside. Appeal allowed. Issues Involved:1. Whether the application filed under Section 7 of the Insolvency & Bankruptcy Code, 2016 was within the limitation period.2. Whether the date of default was correctly determined by the Adjudicating Authority.Summary:Issue 1: Limitation PeriodThe appeal was filed under Section 61 of the Insolvency & Bankruptcy Code, 2016 against the order dated 23.05.2022, where the application was dismissed as barred by limitation. The Appellant argued that the application filed on 04.04.2022 was within the limitation period, considering the exclusion period from 15.03.2020 to 28.02.2022 as per the Supreme Court's order in Suo-moto Writ Petition No. 3 of 2020.The Tribunal noted that the law of limitation is sacrosanct and requires legal remedy within three years from the date of default. It acknowledged that subsequent defaults provide fresh periods of limitation. The Appellant's application filed on 04.04.2022 was within the permissible period, considering the exclusion period and the additional 90 days granted from 01.03.2022.Issue 2: Date of DefaultThe Appellant contended that the Adjudicating Authority wrongly interpreted the date of default as 09.05.2016, the date when the loan was disbursed. The Appellant argued that the first default occurred on 19.08.2018, when the instalment due on 19.07.2018 was not paid, and the entire loan became due on 28.03.2022 as per the Loan Recall Notice dated 25.03.2022.The Tribunal observed that the Financial Creditor has the discretion to file an application under Section 7 of the Code upon any default, not necessarily the first default. The Tribunal found that the Adjudicating Authority erred by considering 09.05.2016 as the date of default and ignoring subsequent defaults. The correct dates of default were 19.08.2018 and 28.03.2022, both within the limitation period.Conclusion:The Tribunal held that the application was within the limitation period and the Adjudicating Authority erred in its judgment. The impugned order was set aside, and the Section 7 application was revived before the Adjudicating Authority for hearing and decision in accordance with the law. No costs were imposed.