2023 (5) TMI 1350 - AT - Insolvency and Bankruptcy

NCLAT upholds Section 7 IBC application for defaults after March 2021 despite Section 10A moratorium arguments

The NCLAT dismissed an appeal challenging rejection of a Section 7 IBC application by a financial creditor. The corporate debtor argued the application ... Dismissal of application filed under Section 7 of IBC by the Financial Creditor - barred by Section 10A or not - determination of date of deault - HELD THAT:- The Hon’ble Supreme Court in Ramesh Kymal versus Siemens Games Renewable Power Private Ltd. [2021 (2) TMI 394 - SUPREME COURT] had noticed the objects and purpose of enactment of Section 10A. In the case before the Hon’ble Supreme Court in Ramesh Kymal versus Siemens Games Renewable Power Private Ltd., the application under Section 9 was filed by the Operational Creditor on 11.05.2020. An ordinance was passed on 05.06.2020 by which Section 10A was inserted in the I&B Code. The Corporate Debtor sought dismissal of Section 9 application by filing an application which was allowed by the Adjudicating Authority which order was also affirmed in appeal. Appellant’s case in appeal before the Hon’ble Supreme Court was that since the application was filed on 11.05.2020 i.e. before insertion of Section 10A on 05.06.2020, the application is not hit by Section 10A, although the default was dated 30.04.2020. Present is a case where date of default is claimed as 31.03.2021 in Part IV of the application and the application is filed including the default amount as per the Debenture Trust Deed, Schedule V, the default from 31.03.2021 onwards - What is prohibited by Section 10A is that no application shall ever be filed for the default which occurred during the period of Section 10A i.e. from 25th March, 2020 to 25th March, 2021. Section 10A has no application when an action is initiated for default which occurred subsequent to 10A period. Section 7 application as well as Reply filed to I.A. No. 34/2022 clearly indicate that Section 7 application which was filed by the Financial Creditor wad confined to the default committed by the Appellant on 31.03.2021 and thereafter. The judgment of this Tribunal in M/s Next Education India Pvt. Ltd. vs. M/s K12 Techno Services Pvt. Ltd. [2021 (3) TMI 767 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI], was a case where Section 9 application was rejected on the ground of pre-existing dispute and being time barred - In the above case, the question which was up for consideration was question of limitation as to regarding payments within three years from the date when the right to apply accrues. In the present case, there is no issue pertaining to limitation in Section 7 application raised, hence, judgment of this Tribunal in M/s Next Education India Pvt. Ltd. vs. M/s K12 Techno Services Pvt. Ltd. has no relevance while considering the claim of the Appellant on the basis of Section 10A. The Adjudicating Authority did not commit any error in rejecting the application - the application under Section 7 filed by the Financial Creditor was not hit by Section 10A - appeal dismissed. Issues Involved:1. Whether the Section 7 application filed by the Financial Creditor was barred by Section 10A of the I&B Code.2. Determination of the date of default and its relevance under Section 10A.3. Validity of the notices issued by the Financial Creditor and their impact on the default date.Detailed Analysis:1. Whether the Section 7 application filed by the Financial Creditor was barred by Section 10A of the I&B Code:The core issue revolves around whether the application under Section 7 of the I&B Code was barred by Section 10A, which prohibits filing for defaults arising on or after March 25, 2020, for a specified period due to the COVID-19 pandemic. The Appellant argued that the default claimed by the Financial Creditor occurred during this period, making the application barred by Section 10A.The Financial Creditor, however, contended that the default date was March 31, 2021, which falls outside the Section 10A period. The Tribunal noted that the Section 7 application was indeed based on defaults occurring after the Section 10A period, specifically from March 31, 2021, onward. Therefore, the application was not barred by Section 10A.2. Determination of the date of default and its relevance under Section 10A:The Appellant claimed that the Financial Creditor's notice dated October 22, 2020, demanded full repayment by January 31, 2021, indicating a default during the Section 10A period. The Financial Creditor argued that the notice did not accelerate the repayment but reserved the right to do so and called for confirmation of payment from a prospective transaction.The Tribunal examined the notice and found that it did not constitute a mandatory prepayment notice or accelerate the redemption of debentures. It merely sought confirmation of payment from the proceeds of a transaction that did not materialize. Hence, the default date remained March 31, 2021, which is outside the Section 10A period.3. Validity of the notices issued by the Financial Creditor and their impact on the default date:The Tribunal reviewed the notices issued by the Financial Creditor, particularly the notice dated October 22, 2020, and the subsequent notice dated July 1, 2022. The October 2020 notice highlighted breaches and reserved the right to accelerate repayment but did not do so. The July 2022 notice reiterated the default and called for repayment due as of May 20, 2022.The Tribunal concluded that the October 2020 notice did not affect the Financial Creditor's right to file a Section 7 application based on defaults occurring after March 31, 2021. The application was filed for defaults post the Section 10A period, making it valid.Conclusion:The Tribunal dismissed the appeal, affirming that the Section 7 application was not barred by Section 10A. The default date was determined to be March 31, 2021, and subsequent defaults, which were outside the Section 10A period. The notices issued by the Financial Creditor were found not to alter the default date or the validity of the Section 7 application.