Tribunal validates Section 7 Application under Insolvency Code, dismissing appeal and affirming creditor's right.

The Tribunal upheld the validity of the Section 7 Application under the Insolvency and Bankruptcy Code, 2016, initiated by the Central Bank of India against the Corporate Debtor for defaulting under the One Time Restructuring Proposal (OTR) Agreement. The Tribunal clarified that the default date under the OTR Agreement was outside the Section 10A period, allowing the Financial Creditor to proceed with insolvency proceedings. Consequently, the appeal was dismissed, affirming the order admitting the Section 7 Application.

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Issues Involved:
1. Validity of the Section 7 Application under the Insolvency and Bankruptcy Code, 2016.
2. Applicability of Section 10A of the Insolvency and Bankruptcy Code, 2016.

Summary:

Issue 1: Validity of the Section 7 Application

The appeal was filed against the order admitting the Company Petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, initiated by the Central Bank of India. The Corporate Debtor defaulted on three term loans and was declared NPA on 29.12.2020. A One Time Restructuring Proposal (OTR) was sanctioned on 21.05.2021, providing an interest moratorium of 16 months and a principal moratorium of 18 months. The Corporate Debtor defaulted under the OTR Agreement on 31.03.2022, leading to the filing of the Section 7 Application.

The Tribunal noted that the Section 7 Application was based on the default under the OTR Agreement dated 21.05.2021, with the date of default being 31.03.2022. The OTR Agreement amended the original loan agreements, and any default under the OTR Agreement was considered for the Section 7 Application. The Tribunal upheld that the default under the OTR Agreement gave the Financial Creditor the right to initiate insolvency proceedings.

Issue 2: Applicability of Section 10A

The appellant argued that the default dates (30.09.2020 and 29.12.2020) were within the Section 10A period, which bars initiation of insolvency proceedings for defaults occurring during the specified period due to the COVID-19 pandemic. However, the Tribunal clarified that the Section 7 Application was filed based on the default under the OTR Agreement on 31.03.2022, which is outside the Section 10A period.

The Tribunal referred to Clause 48 of the RBI Circular dated 06.08.2020, which deals with asset classification post-implementation of the resolution plan. It was concluded that the downgrading of the borrower to NPA as per Clause 48 does not affect the validity of the default date under the OTR Agreement.

Conclusion

The Tribunal concluded that the Section 7 Application was not barred by Section 10A, as it was based on a default that occurred after the Section 10A period. The appeal was dismissed, and the order admitting the Section 7 Application was upheld.

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