Continuing default and Section 10A time-bar in insolvency petitions: tribunal finds application not time-barred and revives petition

The financial creditor relied on a continuing default dated 15 April 2021 that postdated the Section 10A limitation period; the tribunal concluded reliance on defaults occurring after the Section 10A period removed the time-bar. The adjudicating authority's rejection as barred by Section 10A was set aside and the corporate petition was revived for fresh consideration. The tribunal confined its decision to the Section 10A point and did not adjudicate other contentions.

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Issues: Whether the Section 7 application filed by the financial creditor is barred by Section 10A of the Insolvency and Bankruptcy Code, 2016 where the application relies on defaults alleged to have continued and a claimed date of default after the Section 10A blackout period.

Analysis: The Tribunal examined Part IV of the Section 7 application which identified instalment defaults and specified the date of default relied on by the financial creditor as 15.04.2021, i.e., subsequent to the Section 10A period. The Tribunal analysed the statutory scheme of the IBC, the definition of "default", and precedent of this Tribunal which recognises that a financial creditor need not file on the first instance of default and may base a Section 7 petition on defaults occurring within three years of filing. The Tribunal applied the principle that Section 10A only prohibits initiating proceedings for defaults that occurred during the blackout period, and does not extinguish continuing defaults or prevent an application confined to defaults arising after Section 10A. The adjudicating authority's rejection on the ground of Section 10A was found to have overlooked that the application expressly confined the claimed default to 15.04.2021 and thereafter and that the post-10A defaulted amount exceeded the statutory threshold.

Conclusion: The impugned order rejecting the Section 7 application as barred by Section 10A is set aside; the appeal is allowed in favour of the appellant and the Section 7 petition is revived for fresh consideration confined to defaults post-Section 10A.

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