2025 (11) TMI 1806 - AT - IBC

Appeal Fails as IBC Section 7 Admission Upheld, Challenge to Default Threshold and Computation Found Untenable

Karan Bhatia Versus Tata Capital Financial Ltd. & Anr.

NCLAT dismissed the appeal and upheld the admission of a Section 7 application under the IBC. It rejected the appellant's contention that the default ... Admission of Section 7 application - only instalment due was of Rs.41 lakhs which was below the threshold - financial creditor also did not file any application for amendment of the date of default - HELD THAT:- The submission of the appellant that threshold has not been computed cannot be accepted. Learned counsel for the appellant has also relied on the judgment of this Tribunal in the matter of Deepak Mahadev Shirke Vs. Unity Small Finance Bank Limited & Anr. [2025 (4) TMI 969 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI] held that 'The date of default has been held to be the date of arbitral award by the Adjudicating Authority without the Respondent No.1 having made a formal pleading to that effect. The Respondent No.1 not having amended their petition or made pleadings to the effect that the date of default had changed, the Adjudicating Authority could not have held that the arbitral award of 28.04.2022 had reset the limitation period. In the given facts and circumstances, we are therefore inclined to agree with the Appellant that the Adjudicating Authority has erred in extending the period of limitation basis the arbitral award.' - The above observations of this Tribunal were in context of the limitation for filing of Section 7 application hence the said judgment in no manner helps the appellant in the present case. The adjudicating authority after finding debt and default has rightly admitted Section 7 application. No grounds have been made out to interfere with the impugned order, appeal is dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether, for the purpose of admission of a financial creditor's application, the 'default' pleaded in Part IV is confined only to the first date of non-payment or extends to subsequent continuing defaults and recalled outstanding debt. 1.2 Whether the application under the relevant insolvency provision was liable to be rejected on the ground that, on the first date of default alone, the amount in default was below the statutory threshold, despite pleadings of subsequent instalment defaults and recall of the entire loan. 1.3 Whether absence of a formal amendment of the 'date of default' in Part IV rendered the application non-maintainable, in light of prior appellate precedent relied upon by the appellant. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Scope of 'default' pleaded in Part IV; computation vis-à-vis statutory threshold Interpretation and reasoning 2.1 The Court examined column 2 of Part IV of the application, where it was specifically pleaded that: (i) default 'occurred for the first time on 05.09.2024'; (ii) thereafter, the corporate debtor 'again defaulted' in respect of instalments due in October and November; and (iii) the default was 'still continuing'. 2.2 The Court noted that the instalment due on 05.09.2024 was approximately Rs. 41 lakhs, which was an admitted fact. However, it held that the pleadings in Part IV clearly referred not only to that single instalment but to three consecutive instalments (September, October and November), taking the quantum of default above the statutory threshold. 2.3 The Court further relied on the statutory definition of 'default' under the insolvency legislation, as recorded by the adjudicating authority, to hold that once there is a default in payment of any instalment, such default is in respect of the entire remaining debt. The definition does not make recall of the financial facility a condition precedent for recognizing default. 2.4 The Court took note of the recall notice issued in November 2024, by which the lender recalled the entire loan and claimed the full outstanding sum of approximately Rs. 19.23 crores (as of the date pleaded). It held that, by virtue of the recall, the entire loan amount became due and in default, which independently satisfied the threshold requirement on the date of filing of the application. 2.5 The Court rejected the appellant's contention that the adjudicating authority was bound to consider only the single instalment default of 05.09.2024 for threshold purposes. It emphasized that the application itself contained a 'specific pleading' of three instalment defaults (September, October and November), together with a continuing default and recall of the entire outstanding debt. Conclusions 2.6 Default was not confined to the first instalment due on 05.09.2024; the pleadings in Part IV encompassed multiple subsequent instalment defaults and a continuing default. 2.7 Even on a limited reading of Part IV to include only three instalments (September, October, November), the quantum of default exceeded the statutory threshold. 2.8 In any event, upon issuance of the recall notice, the entire outstanding loan became due and in default, and the total claimed amount at the time of filing clearly met the threshold requirement. 2.9 The application was rightly admitted as the requirements of 'debt' and 'default' above the threshold were satisfied. Issue 3: Necessity of formal amendment of 'date of default' in Part IV and applicability of prior precedent Legal framework discussed 3.1 The Court referred to prior appellate authority where it was held that once a Section 7-type application is filed, the date of default stated in Part IV becomes binding and cannot be altered without a formal amendment. In that earlier case, the question pertained to resetting of limitation based on an arbitral award; the appellate forum held that limitation could not be extended without appropriate amendment to the pleadings. 3.2 The Court also cited Supreme Court guidance on the use of precedents, emphasizing that judicial observations are not to be read as statutory provisions and must be applied contextually, having regard to factual differences. Interpretation and reasoning 3.3 The Court distinguished the earlier appellate decision relied on by the appellant on the ground that it concerned extension of limitation by treating an arbitral award as giving rise to a fresh cause of action, while the date of default originally pleaded remained unchanged. The principle there was that for resetting limitation, pleadings must be amended to change the date of default. 3.4 In the present matter, the controversy was not about limitation or changing the date of default, but about the extent and nature of the default already pleaded in Part IV-namely, whether it covered only the first instalment or also subsequent instalments and the recalled debt. 3.5 The Court observed that, unlike in the limitation context, there was no attempt here to substitute or alter the original date of first default. The application consistently pleaded that default first occurred on 05.09.2024 and continued for October and November instalments, culminating in recall of the entire loan. 3.6 Applying the Supreme Court's guidance on precedents, the Court held that the earlier appellate decision could not be transposed mechanically to the present facts, since it addressed a distinct legal issue (limitation) and different factual matrix. Conclusions 3.7 No formal amendment of Part IV was required, as there was no change sought in the originally pleaded date of first default; the application already contained detailed and sufficient pleadings regarding continuing defaults and recall of the entire loan. 3.8 The precedent relied upon by the appellant, being confined to the question of limitation and amendment of the date of default for that purpose, did not assist the appellant in challenging the maintainability of the present application on threshold or default grounds. 3.9 The adjudicating authority committed no error in treating the pleaded continuing defaults and recalled outstanding amount as the operative default for purposes of admission, without insisting upon any further amendment. 3.10 Finding debt and default duly established above the statutory threshold, the Court declined to interfere with the order of admission and dismissed the appeal.