NCLAT upholds Section 7 CIRP admission despite corporate debtor's natural justice and limitation challenges

NCLAT dismissed the appeal challenging admission of corporate debtor into CIRP under Section 7. The tribunal held that natural justice principles were not violated as the corporate debtor had multiple hearing opportunities and could file written submissions. OTS proposals made by the corporate debtor constituted acknowledgment of debt and default under Section 18 of Limitation Act, making the Section 7 application timely filed. Section 10A did not bar CIRP initiation as the default occurred before the Section 10A period commenced, not during it. The adjudicating authority correctly admitted the corporate debtor into CIRP proceedings.

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Issues Involved:
1. Default in discharge of financial debt.
2. Classification of loan account as Non-Performing Asset (NPA).
3. Timeliness and limitation of the Section 7 application.
4. Applicability of Section 10A of IBC.
5. Consideration of written submissions by the Adjudicating Authority.
6. Acknowledgment of debt through One-Time Settlement (OTS) proposals.
7. Evidence of debt and default.

Summary:

1. Default in Discharge of Financial Debt:
The Corporate Debtor denied any default, asserting that EMIs for the months of July and August 2019 were paid, and EMIs from September to December 2019 were adjusted from Fixed Deposit Receipts (FDRs). The Corporate Debtor claimed no default was committed as per the IBC context.

2. Classification of Loan Account as NPA:
The Financial Creditor classified the loan account as NPA on 14.12.2019, asserting that the Corporate Debtor failed to regularize the loan account. The Corporate Debtor argued that they never defaulted in EMI payments for 90 days at a stretch, as mandated by the RBI for NPA classification.

3. Timeliness and Limitation of the Section 7 Application:
The Corporate Debtor contended that the Section 7 application filed in January 2023 was barred by limitation, as the default date was 14.12.2019. The Financial Creditor argued that the date of default shifted due to the Corporate Debtor's OTS proposals, making the application timely.

4. Applicability of Section 10A of IBC:
The Corporate Debtor argued that any default surfaced in June 2020 and thus was covered under Section 10A, barring the Section 7 application. The Financial Creditor countered that the first default arose in May 2019, predating the Section 10A period, making the application maintainable.

5. Consideration of Written Submissions by the Adjudicating Authority:
The Corporate Debtor claimed that the Adjudicating Authority passed the impugned order without considering their written submissions. However, the records showed that the Corporate Debtor was given multiple opportunities to file replies and written submissions, which they availed.

6. Acknowledgment of Debt through OTS Proposals:
The Financial Creditor argued that the OTS proposals constituted acknowledgment of debt under Section 18 of the Limitation Act. The Corporate Debtor's letters dated 24.08.2020 and 11.11.2022 acknowledged the NPA status and proposed settlements, thus extending the limitation period.

7. Evidence of Debt and Default:
The Adjudicating Authority found that the Financial Creditor provided sufficient evidence of debt and default, including OTS proposals and correspondence confirming the NPA status. The Tribunal held that the Corporate Debtor's arguments lacked foundational basis and that the Section 7 application was complete and timely.

Conclusion:
The Tribunal upheld the Adjudicating Authority's decision to admit the Corporate Debtor into Corporate Insolvency Resolution Process (CIRP) under Section 7 of the IBC, finding no error in the impugned order. The appeal was dismissed with no costs.

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