Section 7 application admitted as fresh default after consent decree not barred by Section 10A exclusion period

The NCLAT dismissed an appeal challenging admission of a Section 7 application by a financial creditor. The appellant argued the application was barred by Section 10A of IBC, claiming default occurred during the exclusion period. The NCLAT held that while original defaults occurred in 2017-2018, the Section 7 application was based on fresh default after a consent decree dated 29.08.2022 passed by DRT. Since the application was founded on post-consent decree default rather than pre-10A period defaults, Section 10A did not apply. The adjudicating authority correctly admitted the application.

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Issues Involved:

1. Whether the Section 7 Application filed by the Financial Creditor is barred by Section 10A of the Insolvency and Bankruptcy Code (IBC).
2. Whether the default committed by the Corporate Debtor falls under the 10A period.
3. Whether the Consent Decree dated 29.08.2022 constitutes a fresh cause of action for filing the Section 7 Application.
4. Applicability of precedents and legal principles regarding Section 10A and default acknowledgment.

Detailed Analysis:

1. Bar under Section 10A of the IBC:

The primary contention by the Appellant was that the Section 7 Application filed by the Financial Creditor is barred by Section 10A of the IBC, which prohibits the initiation of insolvency proceedings for defaults occurring during a specified period. The Appellant argued that the default occurred during the 10A period, specifically when the loan facilities were recalled on 15.09.2020. However, the Respondent countered that the default occurred prior to the 10A period, with accounts being declared Non-Performing Assets (NPA) in 2017 and 2018, and a restructuring facility not honored in 2019. The Tribunal found that the Section 7 Application was based on a default post-Consent Decree dated 29.08.2022, which was beyond the 10A period, thus not barred by Section 10A.

2. Default within the 10A Period:

The Appellant contended that the default was during the 10A period, which cannot be cured by the Consent Decree dated 29.08.2022. However, the Tribunal noted that defaults were committed prior to the 10A period, with the Corporate Debtor's accounts being declared NPA in 2017 and 2018. Additionally, the Financial Creditor had agreed to restructure dues on 26.04.2019, which was not honored. The Tribunal concluded that the default was not confined to the 10A period, and the Section 7 Application was based on a subsequent default post-Consent Decree.

3. Consent Decree as Fresh Cause of Action:

The Tribunal examined whether the Consent Decree dated 29.08.2022 constituted a fresh cause of action for the Section 7 Application. The Consent Terms acknowledged the debt and provided a repayment schedule. Paragraphs 9 and 10 of the Consent Terms explicitly allowed the Financial Creditor to file a fresh Section 7 Application in case of default under the Consent Terms. The Tribunal held that the issuance of the Recovery Certificate and the Consent Decree provided a fresh cause of action, with the default date being 29.08.2022, thus not barred by Section 10A.

4. Precedents and Legal Principles:

The Appellant relied on various judgments to argue that the application was barred by Section 10A. However, the Tribunal distinguished these cases based on their facts. The Tribunal referred to the Supreme Court's judgment in Dena Bank Vs. C. Shivakumar Reddy, which allowed Section 7 proceedings based on a Recovery Certificate. The Tribunal also noted that a final judgment or decree provides a fresh right to recover the amount, thus supporting the Financial Creditor's position. The Tribunal found that the precedents cited by the Appellant did not apply to the present case, as the Section 7 Application was based on a post-Consent Decree default.

Conclusion:

The Tribunal concluded that the Section 7 Application was not barred by Section 10A, as it was based on a default post-Consent Decree dated 29.08.2022. The Tribunal dismissed the Appeal, upholding the Adjudicating Authority's decision to admit the Section 7 Application for initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor.

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