2023 (9) TMI 1382 - AT - Insolvency and Bankruptcy

Dismissal of Section 7 Application under Insolvency Code due to corporate guarantee invocation during suspension period

IDBI Trusteeship Services Limited Versus Direct Media Distribution Ventures Private Limited

IDBI Trusteeship Services Limited Versus Direct Media Distribution Ventures Private Limited - TMI Issues Involved:1. Whether the Section 7 Application is barred by Section 10A of the Insolvency and Bankruptcy Code, 2016.2. Determination of the date of default for the invocation of the corporate guarantee.3. Consideration of subsequent events and payments affecting the date of default.Issue 1: Whether the Section 7 Application is barred by Section 10A of the Insolvency and Bankruptcy Code, 2016.The appeal was filed against the order dated 16th May 2023, where the National Company Law Tribunal (NCLT), Mumbai Bench, dismissed the Section 7 Application by the Financial Creditor as barred u/s 10A of the Insolvency and Bankruptcy Code, 2016. Section 10A suspends the initiation of the corporate insolvency resolution process for any default arising on or after 25th March 2020 for a period of six months or such further period, not exceeding one year. The Adjudicating Authority held that the application was barred by Section 10A because the corporate guarantee was invoked on 12th June 2020, during the suspension period.Issue 2: Determination of the date of default for the invocation of the corporate guarantee.The Financial Creditor issued a notice on 12th June 2020, invoking the corporate guarantee and demanding payment within two business days. The default date was determined as 16th June 2020. The Adjudicating Authority noted that the liability of the guarantor arises only upon service of notice in the form given in Schedule II of the guarantee agreement. The Tribunal referred to clauses in the Debenture Trust Deed and Guarantee Deed, concluding that the date of default for the corporate guarantor was 16th June 2020, which falls within the prohibited period u/s 10A.Issue 3: Consideration of subsequent events and payments affecting the date of default.The Appellant argued that the default date should be considered as 15th May 2022, following a demand notice dated 13th May 2022, which accounted for amounts realized from the sale of shares in September 2020. However, the Tribunal held that the default occurring on 16th June 2020 continued despite subsequent realizations and adjustments. The subsequent notice dated 13th May 2022 was seen as a continuation of the earlier invocation notice dated 12th June 2020. Therefore, the application remained barred by Section 10A, as the original default date was within the prohibited period.Conclusion:The Tribunal concluded that the Section 7 Application was correctly dismissed as barred by Section 10A. The liability of the corporate guarantor arose on 16th June 2020, within the suspension period, and subsequent events did not alter the default date. The appeal was dismissed.