2025 (3) TMI 14 - HC - IBC

NCLT has jurisdiction to entertain company petition under Section 10-A IBC when default continues beyond moratorium period

Dharamshi K. Patel and Kamala D. Patel Versus Indian Bank, Shriraam Shekher Resolution Professional and National Company Law Tribunal, Chennai

The HC dismissed a writ petition challenging NCLT's jurisdiction to entertain a company petition under Section 10-A of IBC, 2016. The petitioner argued ... Maintainability of petition u/s 10-A of the Insolvency and Bankruptcy Code, 2016 - jurisdiction of NCLT to entertain the Company Petition given the default period in question - HELD THAT:- Section 10-A of IBC, 2016 is only a moratorium temporarily suspending initiation of CIRP. It is true that Section 10-A prohibits an application for initiation of CIRP of a Corporate Debtor, for any default arising on or after 25.03.2020 for a period of six months. The proviso also indicates that no application can ever be filed for initiation of CIRP of a Corporate Debtor for the said default occurring during the said period, i.e., on or after 25.03.2020 for a period of six months or such further period not extending one year from such date. In the instant case, though the default commenced after the period specified in Section 10-A, it is not in dispute that it continued even after the moratorium period. The intention of the legislature is to give relief by suspending initiation of CIRP. This Court, from the plain reading of Section 10-A is unable to agree with the learned Senior Counsel that even in a case where the default continued after the period of moratorium, no application can be filed. Since proviso to Section 10-A mandate that no application shall ever be filed for initiation of CIRP of the Corporate Debtor for the default occurring during the moratorium period, the above judgment relied upon by the learned Senior counsel is in tune with the statutory provision. However, the proviso cannot be extended to cases where the default is continued beyond the moratorium period. Therefore, there is no jurisdictional error to entertain a writ bye-passing an effective alternative remedy. Conclusion - The writ petition was not maintainable, as the NCLT had jurisdiction to entertain the petition due to the continued default beyond the moratorium period. Petition dismissed. ISSUES PRESENTED and CONSIDEREDThe primary issue considered in this judgment is whether the petition filed before the National Company Law Tribunal (NCLT) is maintainable in light of Section 10-A of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016). Specifically, the question is whether the NCLT has jurisdiction to entertain the Company Petition given the default period in question.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsSection 10-A of the IBC, 2016, temporarily suspends the initiation of the Corporate Insolvency Resolution Process (CIRP) for defaults arising on or after March 25, 2020, for a period of six months, extendable up to one year. The proviso to Section 10-A specifies that no application shall ever be filed for initiation of CIRP for defaults occurring during this specified period.Court's Interpretation and ReasoningThe Court interpreted Section 10-A as a temporary moratorium on the initiation of CIRP for defaults occurring within the specified period. However, the Court noted that if the default continued beyond the moratorium period, the prohibition on filing applications does not apply. The Court emphasized that the legislative intent was to provide relief during the moratorium period but not to indefinitely bar actions for defaults that persist beyond this period.Key Evidence and FindingsThe Court acknowledged that the Corporate Debtor had defaulted on payments and that the default began during the COVID-19 pandemic. However, it was undisputed that the default continued beyond the moratorium period. The Court also noted the admission of default by the petitioners in various One-Time Settlement (OTS) proposals.Application of Law to FactsThe Court applied Section 10-A to the facts, concluding that while the initial default occurred during the moratorium period, the continued default beyond this period allowed for the initiation of CIRP. The Court found that the NCLT had jurisdiction to entertain the petition since the default persisted after the moratorium period.Treatment of Competing ArgumentsThe petitioners argued that the application was not maintainable due to the default occurring during the COVID-19 period, relying on Section 10-A and the Supreme Court judgment in Ramesh Kymal v. SiemensGamesa Renewable Power Private Limited. The Court, however, distinguished this case by noting that the default continued beyond the moratorium period, thus permitting the initiation of CIRP.ConclusionsThe Court concluded that the NCLT had jurisdiction to entertain the petition as the default continued beyond the moratorium period specified in Section 10-A. The Court found no merit in the writ petition and dismissed it, emphasizing the availability of an effective alternative remedy.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning'The intention of the legislature is to give relief by suspending initiation of CIRP. This Court, from the plain reading of Section 10-A is unable to agree with the learned Senior Counsel that even in a case where the default continued after the period of moratorium, no application can be filed.'Core Principles EstablishedThe Court established that Section 10-A provides temporary relief for defaults occurring during a specified period due to extraordinary circumstances like the COVID-19 pandemic. However, this relief does not extend indefinitely to defaults that persist beyond the moratorium period.Final Determinations on Each IssueThe Court determined that the writ petition was not maintainable, as the NCLT had jurisdiction to entertain the petition due to the continued default beyond the moratorium period. The Court dismissed the writ petition, citing the availability of an effective alternative remedy.