NCLAT upholds Section 7 admission despite debt restructuring as moratorium didn't cover interest payment defaults

The NCLAT dismissed the appeal challenging admission of a Section 7 application. The Corporate Debtor argued that after debt restructuring, no default existed on the alleged dates, making the admission illegal. The NCLAT held that while moratorium was granted for principal amounts under MSME restructuring guidelines, it did not cover interest payments. The Corporate Debtor defaulted on interest payments and continuously exceeded sanction limits, justifying NPA classification. The tribunal found clear evidence of default through loan agreements, restructuring letters, and bank statements, upholding the lower authority's decision.

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Issues Involved:
1. Whether there was a default by the Corporate Debtor.
2. Whether the date of default was correctly reflected in the application filed under Section 7 of the Insolvency & Bankruptcy Code, 2016.
3. Whether the Corporate Debtor was entitled to the benefit of restructuring under RBI Circular dated 17.03.2016.
4. Whether the classification of the loan account as Non-Performing Asset (NPA) was correct.

Summary:

1. Default by Corporate Debtor:
The Appellant, Designated Partner of Suryadeep Multipurpose Cold Storage LLP, contended that there was no default as the debt was not due. However, the Respondent (Bank of India) argued that despite restructuring, the Corporate Debtor failed to meet its financial obligations. The Tribunal noted that the Corporate Debtor had acknowledged its default in a letter dated 19.10.2020, admitting the NPA status as of 30.09.2019. The Tribunal found that the Corporate Debtor had defaulted on interest payments, which was not covered by the moratorium, and thus, there was a clear default.

2. Date of Default:
The Appellant argued that the date of default was unclear, with different dates mentioned (01.06.2019 and 01.04.2019). The Tribunal observed that the loan accounts were classified as NPA on 30.09.2019 due to non-payment of interest, which was consistent with the RBI Prudential Norms. The Tribunal found the arguments about different default dates unconvincing, as the loan accounts were regularized and then defaulted again.

3. Benefit of Restructuring:
The Appellant claimed that the Corporate Debtor, being an MSME, was entitled to restructuring benefits under the RBI Circular dated 17.03.2016. The Respondent clarified that the restructuring was granted, but the moratorium applied only to the principal amount, not the interest. The Tribunal agreed with the Respondent, noting that the restructuring letter dated 30.03.2019 clearly stipulated that interest was to be paid monthly.

4. Classification as NPA:
The Appellant contended that the classification of the loan account as NPA on 30.09.2019 was incorrect. The Respondent maintained that the classification was in line with RBI Prudential Norms due to non-payment of interest. The Tribunal found that the loan accounts were correctly classified as NPA, as the Corporate Debtor had failed to meet its repayment obligations.

Conclusion:
The Tribunal found no error in the Impugned Order, which had considered all facts and concluded that there was a default by the Corporate Debtor. The Appeal was dismissed with no costs, and any Interlocutory Applications were closed.

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