2023 (11) TMI 481 - AT - Insolvency and Bankruptcy

NCLAT upholds CIRP initiation under Section 7 as pre-existing defaults before moratorium period validate application despite Section 10A challenge

Pratik Jiyani, Suspended Director, Rite Developers Private Limited Versus Pirmal Capital & Housing Finance Limited, Mr. Amit Vijay Karia, IRP, Rite Developers Private Limited

The NCLAT dismissed an appeal challenging NCLT's admission of a Section 7 application for CIRP initiation. The appellant argued the application was barred ... Initiation of CIRP - Application u/s 7 admitted by NCLT - Period of limitation - Date of default - bar on account of Section 10A of IBC - the impugned order challenged on the ground that as the loan recall notice dated 20.08.2020 fell within the period of Section 10A of the Code, the Application under Section 7 was barred - HELD THAT:- On looking into the date of default as mentioned in paragraph 1.3 of the impugned order, it is clear from the Table that till February 2020, admitted amount in default was Rs.10,51,94,998/-. The emphasis made by learned Counsel for the Appellant is on the notice dated 28.08.2020, which is loan recall notice. The submission of learned Counsel for the Appellant is that loan recall notice having been issued on 20.08.2020, the entire loan became due only consequent to loan recall notice, which loan recall notice having been issued on 20.08.2020, i.e., during 10A period, the application was clearly barred. Loan recall notice dated 28.08.2020 was addressed to Corporate Debtor as well as the Personal Guarantor. The contention advanced by the learned Counsel for the Financial Creditor to counter the above submission is on the basis of Clause 8.1 of the Loan Agreement - There is no dispute between the parties that there is admitted default in payment of interest for two consecutive months prior to 10A period, which is apparent from the Chart as extracted in paragraph 1.3 of the impugned order. Even if, no notice dated 28.08.2020 was issued by the Financial Creditor, the principal amount also became due on occurring of event of default as per Clause 8.1. The bar under Section 10A, does not apply when the default is committed prior to 10A period. The learned Counsel for the Respondent has rightly placed reliance on the judgment of this Tribunal in NARAYAN MANGAL VERSUS VATSALYA BUILDERS & DEVELOPERS PVT. LTD [2023 (8) TMI 1378 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI] where after noticing the Section 10A and the judgment of the Hon’ble Supreme Court in Ramesh Kymal v. siemens Gamesa Renewable [2021 (2) TMI 394 - SUPREME COURT] where it was held that The Section 10 A provides that no application/proceedings under Section 7,9 & 10 is to be initiated for a default which is committed during Section 10A period. What is bar is initiation of proceedings when Corporate Debtor commits default in Section 10 A period. If the default is committed prior to Section 10A period and continues in the Section 10 A period the initiation of proceeding is not barred. Thus, the application filed by the Financial Creditor under Section 7 was not hit by Section 10A. Furthermore, it is admitted case of the parties that prior to commencement of 10A period, the default upto February 2020 was approximately Rs.10,51,94,998/-, which is much beyond the threshold provided for Section 7 Application - there are no good ground to interfere with the impugned order of the Adjudicating Authority admitting Section 7 Application - appeal dismissed. Issues Involved:1. Bar under Section 10A of the Insolvency and Bankruptcy Code, 2016.2. Default and repayment obligations under the Loan Agreement.3. Validity of the Financial Creditor's Application under Section 7.Summary:Bar under Section 10A of the Insolvency and Bankruptcy Code, 2016:The Appellants argued that the loan recall notice dated 28.08.2020 fell within the period of Section 10A of the Code, thus barring the Application under Section 7. They contended that the Financial Creditor could not file a petition for the entire loan amount for defaults committed during the 10A period. However, the Tribunal found that defaults had occurred prior to the 10A period, specifically noting that the default amount up to February 2020 was Rs.10,51,94,998/-. The Tribunal referenced the judgment in Narayan Manga vs. Vatsalya Builders & Developers Pvt. Ltd., which clarified that Section 10A does not apply to defaults committed before the 10A period. Therefore, the Application under Section 7 was not barred by Section 10A.Default and repayment obligations under the Loan Agreement:The Financial Creditor argued that the Corporate Debtor defaulted on interest payments from June 2018, with the first default occurring on 11.07.2018. Clause 8.1 of the Loan Agreement stated that two consecutive defaults in interest payment constitute an event of default, making the entire loan due and payable. The Tribunal found that the Corporate Debtor had indeed defaulted on multiple occasions before the 10A period, and the entire loan became due as per the Loan Agreement's terms. The Tribunal dismissed the Appellant's reliance on Clause 8.3, which required the Borrower, not the Financial Creditor, to notify the event of default.Validity of the Financial Creditor's Application under Section 7:The Tribunal noted that the Financial Creditor's Application under Section 7 was filed based on continuous defaults by the Corporate Debtor, which began before the 10A period. The Tribunal emphasized that the default amount prior to the 10A period exceeded the threshold for filing a Section 7 Application. Consequently, the Tribunal upheld the Adjudicating Authority's order admitting the Section 7 Applications and dismissed the Appeals, finding no merit in the Appellant's arguments.Conclusion:The Tribunal concluded that the Financial Creditor's Application under Section 7 was valid and not barred by Section 10A, as the defaults occurred prior to the 10A period. The Appeals were dismissed, and the Adjudicating Authority's order admitting the Section 7 Applications was upheld.