SIDBI wins appeal for insolvency proceedings against defaulting borrower under Section 7 IBC despite Section 10A bar

NCLAT allowed SIDBI's appeal against the corporate debtor for initiation of CIRP under Section 7 of IBC. The respondent had defaulted on loan instalments and admitted to the debt and default post-September 2020. The tribunal held that each missed instalment constitutes a fresh default, and despite Section 10A bar, fresh defaults occurring after the suspension period (post-25.03.2021) justified insolvency proceedings. The respondent's admission of debt and acknowledgment that CIRP would be beneficial supported the appellant's case. The application for CIRP was ordered to be admitted.

---

---

Issues Involved:
1. Maintainability of the Appeal.
2. Admission of Debt and Default by Respondent.
3. Changing of Default Date - Allowable or NotRs.
4. Interpretation of Section 10A vis-a-vis Admissibility of Fresh Defaults.

Issue-wise Detailed Analysis:

1. Maintainability of the Appeal:
The Appellate Tribunal had previously granted the liberty to the Appellant to file a fresh application, correcting earlier technical errors and accurately reflecting the default date. The Tribunal noted that the previous dismissal should not impact the current petition as it was explicitly allowed to be refiled. The fresh application was found to be in compliance with this directive, making the appeal maintainable.

2. Admission of Debt and Default by Respondent:
The Respondent explicitly admitted to borrowing funds from the Appellant and defaulting on repayment post-September 2020. The Respondent also acknowledged that initiating the Corporate Insolvency Resolution Process (CIRP) would be beneficial. This admission supports the Appellant's case for insolvency proceedings, as the debt and default were clearly established.

3. Changing of Default Date - Allowable or NotRs.
The Appellant initially filed a petition with an incorrect default date due to human error. The second petition corrected this by specifying the default date as 10.07.2021, aligning with the Statement of Accounts. The Tribunal noted that each missed installment constitutes a fresh default, which justifies the initiation of CIRP. The Tribunal cited the case of Kotak Mahindra Bank Ltd. v. Anuj Kumar, which held that each breach of the repayment schedule could be treated as a fresh cause of action. The Tribunal also referred to the Supreme Court judgment in Dena Bank v. C. Shivakumar Reddy, which allows for the amendment of pleadings in an application under Section 7 of the IBC.

4. Interpretation of Section 10A vis-a-vis Admissibility of Fresh Defaults:
The Tribunal emphasized that Section 10A bars the initiation of CIRP for defaults occurring between 25.03.2020 and 24.03.2021. However, defaults occurring after this period are admissible. The Tribunal cited the case of NuFuture Digital (India) Limited vs Axis Trustee Services Ltd., which was upheld by the Supreme Court, to support the view that fresh defaults post the 10A period justify the initiation of insolvency proceedings. The Tribunal concluded that the fresh defaults by the Respondent, occurring after the 10A period, meet the threshold for filing under the IBC.

Conclusion:
The Tribunal found that the Appellant, SIDBI, had established a clear case of continuous defaults by the Respondent, Sambandh Finserve Private Limited, post the suspension period of Section 10A of the IBC. The Respondent's admission of debt and default, along with the consistency of the default date of 10.07.2021 in the fresh application, substantiated the Appellant's claim.

Order:
The appeal was allowed, and the Impugned Order dated 08.05.2023 was set aside. The application under Section 7 of the IBC filed by SIDBI for Corporate Insolvency Resolution Process was admitted against the Respondent, Sambandh Finserve Private Limited. The Adjudicating Authority was directed to initiate CIRP proceedings within 10 days as per the IBC provisions. No order as to costs.

---