2025 (2) TMI 71 - AT - IBC

Financial creditor allowed to amend default date from 2020 to 2019 in Section 7 application before final order

Puneet P. Bhatia Versus ASREC (India) Ltd. and Mr. Ganesh Venkata Siva Rama Krishna Remani

NCLAT dismissed appeal challenging admission of Section 7 application. Financial creditor amended default date from 31.10.2020 to 02.08.2019 after filing ... Admission of section 7 application - Validity of the amended default date cited by the respondent and the applicability of Section 10A of IBC - change of date of default after filing the petition under Section 7 of the Insolvency and Bankruptcy Code (IBC) - determination of date of default. Whether the date of default can be changed after filing the petition under Section 7 of the Insolvency and Bankruptcy Code (IBC)? - HELD THAT:- The Corporate Debtor had availed various credit facilities from Bharat Cooperative Bank through successive sanction letters dated 21.03.2017, 14.08.2018, and 11.03.2020. Despite these agreements and restructuring efforts, the CD failed to meet payment deadlines, resulting in the debt claimed by ASREC - ASREC (India) Limited/R-1 initially filed its Section 7 petition stating a default date of 31.10.2020, which was later amended to 02.08.2019. The tribunal permitted this amendment on 13.10.2023. The revised date is crucial as it aims to establish that the default occurred outside the Section 10A exemption period (introduced to protect defaults during the COVID-19 pandemic). In Dena Bank v. C. Shivakumar Reddy and Another [2021 (8) TMI 315 - SUPREME COURT] Dena Bank sought to initiate insolvency proceedings against a corporate debtor by filing a Section 7 application with the NCLT. The bank' s petition was based on the default date related to a Non- Performing Asset (NPA) declared years earlier. Dena Bank later sought to rely on new documents and amendments. Hon’ble Supreme Court vide judgement ruled that amendments to the application or submission of additional documents could be made before the final order admitting or rejecting the petition under Section 7. The Court clarified that the law does not explicitly bar such amendments, as they support the IBC's goal of comprehensive debt recovery. However, the Court noted that such amendments should not manipulate the limitation period, but may reflect new acknowledgments of debt or judgments creating a fresh cause of action. In the present case, Unlike Plus Corporate Ventures [2022 (10) TMI 1273 - NCLAT], where the default date clearly fell within the Section 10A period, there is dispute in the current case, over whether the default indeed occurred during this period. The respondent asserts that the default date was August 2, 2019, which predates the Section 10A moratorium period. This amended default date, places the present case outside the protective scope of Section 10A. As such, the ratio of Plus Corporate Ventures to this case does not apply. As per the provisions of the Code, the NCLT is empowered to allow the parties to amend the pleadings before the final orders in CIRP proceedings are passed. This would however be subject to the procedure laid down in the code, as confirmed by Dena Bank (Supra). We have observed that the Adjudication Authority in this case has correctly followed the laid down process and the judgement of Dena bank is applicable squarely in this case. The amendment of date of default has been correctly allowed by AA. Whether the date of default has been correctly identified in this case? - HELD THAT:- It is seen that RBI as the regulatory authority during the inspection of the bank found that compliance with the conditions laid down in the sanction letters were not met and hence the CD was ineligible for restructuring. Accordingly, due to noncompliance the extent sanction letter dated 17.03.2020 became void ab-initio and the same was not tenable in the eyes of law. Banks have to mandatorily comply with the guidelines of the RBI in this regard. Therefore, the date of NPA became 01.11.2019 and the original date of default would be 02.08.2019 i.e., 90 days prior the date of NPA as per RBI IRAC Guidelines. The amended date of 02.08.2019 is also supported by records from the National EGovernance Services Limited (NESL) database, which confirms the occurrence of a default prior to the COVID-19 moratorium period. Section 10A of the IBC was introduced to provide relief to businesses affected by the economic impact of the COVID-19 pandemic by precluding insolvency proceedings for defaults occurring between 25.03.2020 and 25.03.2021. The appellant’s reliance on Section 10A is premised on the initial default date of 31.10.2020, which falls within this protected period. However, the respondent’s assertion of a default on 02.08.2019 predates the moratorium period, rendering Section 10A inapplicable - The respondent’s actions in initiating CIRP are consistent with the objectives of the IBC, which prioritize the resolution of insolvency cases in a time-bound manner to maximize asset value and ensure the equitable treatment of creditors. The evidence presented demonstrates the corporate debtor’s prolonged financial incapacity and failure to fulfill its debt obligations despite multiple opportunities to restructure and repay. The respondent, as a financial creditor, is entitled to seek relief under the IBC when defaults are established and substantiated by documentary evidence. Conclusion - The amendment of the default date was correctly allowed and that the default date of 02.08.2019 was valid, rendering the protections under Section 10A inapplicable. There are no infirmity in the impugned order of the Adjudicating Authority - appeal dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:a) Whether the date of default can be changed after filing the petition under Section 7 of the Insolvency and Bankruptcy Code (IBC).b) Whether the date of default has been correctly identified in this case.2. ISSUE-WISE DETAILED ANALYSISa) Whether the Date of Default can be changed after filing the petition under Section 7 of the CodeRs.- Relevant legal framework and precedents: The Court referred to the judgment of the Hon'ble Supreme Court in Dena Bank v. C. Shivakumar Reddy and Another, which clarified that amendments to the application or submission of additional documents could be made before the final order admitting or rejecting the petition under Section 7. The law does not explicitly bar such amendments, as they support the IBC's goal of comprehensive debt recovery.- Court's interpretation and reasoning: The Tribunal noted that the amendment of pleadings is permissible under the IBC before the final order is passed. The Tribunal allowed the amendment of the default date from 31.10.2020 to 02.08.2019, as it was done following the laid down procedure and principles of natural justice.- Key evidence and findings: The Tribunal relied on financial records, sanction letters, and debt assignment documents provided by ASREC to substantiate the grounds for default and validate the claim.- Application of law to facts: The Tribunal applied the principles laid down in Dena Bank, allowing the amendment to the date of default, which was crucial to establish that the default occurred outside the Section 10A exemption period.- Treatment of competing arguments: The appellant argued that the amendment was a procedural manipulation aimed at bypassing Section 10A protections. However, the Tribunal found no procedural irregularities in allowing the amendment.- Conclusions: The Tribunal concluded that the amendment of the date of default was correctly allowed, and the appellant's objections were not substantiated.b) Whether in the present case the date of default has been correctly identifiedRs.- Relevant legal framework and precedents: The Tribunal considered the RBI guidelines and the provisions of the IBC, particularly Section 10A, which provides relief for defaults occurring during the COVID-19 pandemic.- Court's interpretation and reasoning: The Tribunal found that the original default date of 02.08.2019 predates the Section 10A moratorium period, rendering the protections under Section 10A inapplicable.- Key evidence and findings: The Tribunal relied on the RBI's classification of the loan account as NPA as of 01.11.2019 and the NESL database, which confirmed the occurrence of a default prior to the COVID-19 period.- Application of law to facts: The Tribunal applied the RBI guidelines and the IBC provisions to determine that the default date of 02.08.2019 was valid, as the restructuring agreement did not reset the default timeline.- Treatment of competing arguments: The appellant argued that the restructuring agreement set a new repayment schedule that superseded the earlier obligations. However, the Tribunal found no evidence to support this claim.- Conclusions: The Tribunal concluded that the default date of 02.08.2019 was correctly identified and that the protections under Section 10A were not applicable.3. SIGNIFICANT HOLDINGS- Preserve verbatim quotes of crucial legal reasoning: 'There is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with application under Section 7 of the IBC in Form-1.'- Core principles established: The Tribunal established that amendments to the date of default are permissible before the final order is passed, provided they follow the procedural requirements and do not manipulate the limitation period.- Final determinations on each issue: The Tribunal determined that the amendment of the default date was correctly allowed and that the default date of 02.08.2019 was valid, rendering the protections under Section 10A inapplicable.