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TaxTMI 
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2024 (4) TMI 1066
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.... Vs. Jabalpur MSW Pvt. Ltd." [CP (IB) No. 417/ND/2021], inter alia, admitting the Application filed by the Respondent No. 1 i.e. State Bank of India under Section 7 of the IBC Code (hereinafter referred to as "Section 7 Application") against Jabalpur MSW Private Limited (hereinafter referred to as "Corporate Debtor"). The Appeal has been filed by Mr. Milind Kashiram Jadhav, the Suspended Director of the Corporate Debtor: Jabalpur MSW Private Limited. Brief facts of the case 2. The Respondent, a Financial Creditor, filed an Application with the NCLT seeking insolvency proceedings against the Appellant, a Corporate Debtor, alleging a default exceeding Rs. 46.80 crores. The Respondent argued that the default date was September 27, 2019, when the loan became classified as a Non-Performing Asset (NPA) and issued the recall notice on 11.08.2020. 3. The Appellant contested this, asserting that the default occurred on August 18, 2020, after receiving a loan recall notice. They further argued this fell within a period where initiating insolvency proceedings was barred under the IBC under Section 10A. 4. The Respondent No. 2 is the Interim Resolution Professional of the Corporate Debtor....
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.... or Material Project Documents; c) Misrepresentation: A representation, warranty or statement made or repeated in or in connection with any Financing Documents or Material Project Documents or in any document delivered by or on behalf of the Borrower is incorrect d) Inadequate security and insurance; e) Breach of any undertaking furnished by Sponsor, f) Cross default of the Borrower under any of the Material Project Documents; g) Utilization of facility for purposes other than for which they have been granted; h) Change on control of the Borrower without the prior written approval of the Lenders; i) Default with respect to any Material Project Documents which may have a material adverse effect; j) Revocation, termination or suspension of a material contract; k) Insolvency/winding-up or dissolution of Borrower; l) Compromise by Borrower with creditors generally; m) Cessation/threat of cessation of business of Borrower, n) Sale/transfer of assets which in reasonable opinion of Lenders has/shall have Material Adverse Effect, and The above are indicative and shall be defined in detail in the Facility Agreement Including consequence oy event of def....
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....the terms of the Sanction Letter, had failed to issue an intimation of Event of Default and had failed to provide any period of cure to the Corporate Debtor. 16. Specifically speaking on 11.08.2020, the Financial Creditor issued a Loan Recall Notice to the Corporate Debtor. It is by way of this Loan Recall Notice that the Financial Creditor accelerated the repayment of the loan facility/ recalled the entire outstanding loan amount to be payable within 7 Company Appeal (AT) (Insolvency) No. 1589 of 2023 7 of 26 days from the receipt thereof. Thus, at best, considering the date of the Loan Recall Notice, the total outstanding due amount under the Sanction Letter fell due and payable on 18.08.2020 i.e. 7 days from the Loan Recall Notice and any failure to pay the outstanding dues on 18.08.2020 would constitute as a default. 17. In the aforementioned Loan Recall Notice, the Financial Creditor had mentioned that the Corporate Debtor had availed and utilized the aforesaid credit facilities but had been highly irregular in its repayment. Therefore, the loan accounts, pertaining to the aforesaid have been classified as Non- Performing Assets by the Financial Creditor on 27.09.2019 in acc....
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....which clearly falls between the period of 25.03.2020 to 24.03.2021 for which the initiation of corporate insolvency resolution process was statutorily barred under Section 10A of the IBC, 2016 and therefore, no Application could ever be filed for initiation of Corporate Insolvency Resolution Process against the Corporate Debtor. Alleged "Debt" of Rs. 46,79,88,297.64 at best arose on 11.08.2020 when the loan was recalled vide the Loan Recall Notice dated 11.08.2020 and "Default" in respect thereof arose, at best, on 18.08.2020 and proceedings in respect thereof is barred in terms of Section 10A IBC. 22. The IBC Code, 2016 clearly defines the default date as the date of occurrence of event of default but the Adjudicating Authority has incorrectly relied on the date of NPA declaration by the Financial Creditor. "Default" has to be considered in terms of the Sanction Letter/ terms and conditions agreed upon by the parties. 23. Further, Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 [IB(AAR), 2016] inter alia, provides the form and manner in which an Application under Section 7 of the IBC is to be preferred, reproduced as under: " 4. Appl....
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....ivalent to "Default" as per IBC and the records of the Respondent No. 1 establishes payments by the Corporate Debtor even after the date NPA. 27. As per the Statement as filed by the Respondent No. 1, it shall be evident that the Corporate Debtor has been duly making payment, as under: Alleged Interest Due and Penal Interest (as on 28.02.2021) Payment made (as on 28.02.2021) Rs. 7,15,01,164.39 Rs. 9,43,88,000.00 Rs. 1,40,31,623.25 Rs. 1,90,31,977.00 Thus, it is stated that SOA with the Section 7 Application was grossly incorrect and fabricated. 28. Corporate Debtor was a going concern and that the Respondent No. 1 had been appropriating payments / monies even till the filing of the written submissions in the matter. Submissions of Respondent- Financial Creditor - State Bank of India 29. As per the RBI Circular in regard to NPA/Income Recognition, once the debt continues to be in default for a period of 90 days, the loan account is classified as NPA, therefore, in other words, the defaulter/borrower gets 90 days to cure the default of payment of the loan instalment, failing which the loan accounts are classified as NPA and the default for the entire outstanding is ....
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....lassified as NPA on which the entire loan outstanding becomes due. Thus, the default commenced 90 days prior and the entire outstanding became due and payable on the date of NPA on 27.09.2019. Therefore, the Respondent No. 1-Bank was within its rights to take further recourse for resolution of the Corporate Debtor under the IBC, 2016 on the strength of the default which was evidenced by the date of NPA. 37. The Loan Recall Notice dated 11.08.2020 was issued only to provide the CD with one more chance to make payment of all the outstanding dues, and was rather issued because the loan accounts of the CD were classified as NPA on 27.09.2019. Thus, the NPA Date of 27.09.2019 was true and correct date of default for all intents and purposes including the Section 7 IBC Application. Sufficient time and opportunity were granted to the CD for making payment of the outstanding debt. 38. Even after filing of the Section 7 petition, the CD sought time to settle the matter and multiple adjournments were granted, however, the parties failed to settle the matter. One-Time-Settlement offered by the CD, twice, were rejected by the consortium, thus, the liability and the factum of debt and default....
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....re of its obligations under the said documents. 43. The account of the CD was changed to 'in default' twice before classifying the account as NPA on 27.09.2019. Further, even if the failure of the CD in payment of the loan instalment is construed as an 'Event of Default', the Sanction Letter or even the loan documents nowhere postulate that the Bank has to intimate such default to the CD, because the CD is in fact already aware of his obligation of making payments and is also aware of the consequences of non-payment of loan instalments. 44. CD offered OTS twice to the consortium also goes to show that the CD was fully aware of its default. 45. Since the non-payment of the loan instalment may be an 'event of default', the CD ought to have been given a cure period notice by the Bank which was not given, the CD was to service the interest/loan instalment every month, thus, if the CD failed to service the said interest/loan instalment in any month, the Sanction Letter or even the loan documents nowhere postulate any 'notice' to be given by the Bank for the alleged 'cure period'; Sanction Letter talks about the cure period for those events of d....
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....tion. 48. Section 3(12) of the IBC deals with the expression 'Default' to mean non-payment of debt when whole or any part of instalment of the amount has become due and payable, thus, when on the loan accounts being classified as NPA the whole of the debt is due and payable - it is a 'Default' under the IBC, thus, the date of NPA can be taken as the date of default. 49. Allegations of the Appellant are only technical in nature to divert the attention which have no bearing on the Section 7 IBC Application. Appraisal : 50. Heard counsels of rival parties and also perused documents placed before us. 51. Briefly speaking, Appellant's main arguments are that the date of default should be the date of the Loan Recall Notice (August 11, 2020) because they made payments between the NPA declaration (September 27, 2019) and the Recall Notice. Also the Financial Creditor (State Bank of India) should have provided a cure period notice before the Loan Recall Notice, as stipulated in the loan agreement. And in such a situation the default would have fallen within the period of March 25, 2020 to March 24, 2021 and the proceedings would have been barred under Section 10A of IB....
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....v. Stressed Asset Stabilization Fund (2022) 145 taxmann.com 594 ( NCLAT-New Delhi ) ] [ Emphasis supplied ] 55. The only other major issue is with respect to the date of default whether the date of NPA declaration (September 27, 2019) or the date of Loan Recall Notice (August 11, 2020) constitutes the default date, which is examined in next few paragraphs. 56. In adherence to Reserve Bank of India (RBI) regulations, the classification of Non-Performing Assets (NPAs) serves as a pivotal measure for maintaining the financial health and stability of the banking sector. When a borrower defaults on loan payments for a stipulated period, typically 90 days, the loan account is rightfully classified as an NPA. This classification isn't arbitrary; it's a well-defined threshold indicating a lapse in repayment obligations. 57. Consider the scenario at hand: a loan instalment due on June 30, 2019, remains unpaid. Following the regulatory protocol, on September 27, 2019, marking the 90th day of default, the loan account was rightly categorized as an NPA. This classification is not an arbitrary punishment but rather a consequence of a fundamental breach of repayment terms. 58. Up....
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..... It is difficult to accept the argument of the Appellant that this date should not be treated as the date of default. 65. Now we briefly examine the contention of the Appellant that the date of default should align with the recall notice date which is 11.08.2020, asserting that the provisions of the loan agreement were violated by the Financial Creditor's failure to provide a cure period notice as stipulated in the Sanction Letter. 66. Corporate Debtor (CD) relies on a Sanction Letter dated 04.08.2014, which is issued well before the enactment of the Insolvency and Bankruptcy Code (IBC) 2016. The events of default outlined in this letter aim primarily at recovery of amounts owed, rather than seeking the 'resolution' of the CD under the IBC. It's crucial to note that the CD was afforded a statutory period of 90 days from the date of the first irregularity in the loan account to rectify the default. Despite this opportunity, the CD failed to cure the irregularity, leading to the classification of the loan accounts as Non-Performing Assets (NPA) after 90 days of continued default. Furthermore, the remedies stipulated for events of default in the Sanction Letter primaril....
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....on 7 of the Code enures. Section 18 of the Limitation Act would come into play every time when the principal borrower and/or the corporate guarantor (corporate debtor), as the case may be, acknowledge their liability to pay the debt. Such acknowledgment, however, must be before the expiration of the prescribed period of limitation including the fresh period of limitation due to acknowledgment of the debt, from time to time, for institution of the proceedings Under Section 7 of the Code. Further, the acknowledgment must be of a liability in respect of which the financial creditor can initiate action Under Section 7 of the Code. [ Laxmi Pat Surana vs. Union Bank of India and Ors. ( 26.03.2021 - SC ) (2021) 8 SCC 481 ] [ Emphasis supplied ] 69. Default event is also elucidated by another judgement of Hon'ble Apex Court as extracted below: "The scheme of the IBC is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the Corporate Insolvency Resolution Process begins. Where any corporate debtor commits default, a financial creditor, an operational creditor or the corporate debtor itself may initiate Corporate Insolvency Resolu....