TaxTMI 
TaxTMI 
2025 (2) TMI 71
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....d, Respondent No. 1/ Financial Creditor under Section 7 of the Insolvency and Bankruptcy Code, 2016 (in short, the "Code"). 2. The CIRP application was filed before the Adjudicating Authority (in short, the "AA") on the ground that the CD has defaulted to repay the Financial Creditor an amount of Rs. 21,37,94,606/- (Rupees Twenty-One Crore Thirty-Seven Lakhs Ninety-Four Thousand Six Hundred Six only) as on 30.09.2022. 3. The brief facts of the case are as follows: (i) Barracks Retail India Pvt. Ltd./CD was incorporated on 25.01.2016, under the Companies Act, 2013, with its registered office in Mumbai, focusing on garment manufacturing. In early 2017, CD sought funding from Bharat Co-operative Bank (Mumbai) Limited (in short the "Bank") to support its operations. On 21.03.2017, the bank sanctioned a Term Loan of Rs. 5 crores for capital expenses, repayable through monthly EMIs, along with a Rs. 25 lakh Cash Credit limit for working capital. To secure these facilities, the CD pledged assets, including 41 nonagricultural plots in Vikramgarh, Maharashtra, on 30.03.2017, and executed a series of security documents, including a Deed of Mortgage, hypothecation agreements, a....
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....ied CD's account as NPA as on 01.11.2019, as the restructuring of loan account was done by the Bank, without getting cleared the entire outstanding Interest/ Overdue Principal amount. As on date of declaration of the NPA i.e. 01.11.2019 the aggregate principal outstanding amount of the CD was Rs 16,21,73,514/-. (vii) The Bank issued a notice to recall the facilities on 19.03.2021 under Section 13(2) of SARFAESI Act 2002 requiring the CD to pay all the outstanding under all credit facility accounts within 60 days from the date of receipt of the said notice. (viii) The Bank vide assignment agreement dated 25.03.2021, assigned CD's loans in favour of ASREC (India) Limited / Respondent-1, which assumed debt recovery rights including all agreements, deeds and documents thereto and all collateral and underlying security Interests and or pledges created to secure and /or guarantees issued in respect of, the repayment of loans. (ix) Thereafter, the Respondent-1 filed an application under Section 7 of the Code on 18.02.2023, for initiating CIRP against the CD, citing a default date of 31.10.2020. The CD objected to the said petition invoking Section 10A of the Cod....
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....h a restructuring of the existing cash credit and term loan facilities. This restructuring was conducted to adapt to the evolving financial needs of the CD. 7. The counsel for the appellant highlights that the Bank deferred interest payments for the period from 01.03.2020 to 31.08.2020 in compliance with the Reserve Bank of India's (RBI) COVID-19 Regulatory Package. This deferment aimed to provide relief to borrowers during the pandemic. Since the original date of default cited by the respondent allegedly arose post- 17.03.2020, during the moratorium period, the appellant contends that it should be exempt from CIRP initiation as per Section 10A of the IBC. The protective provisions of Section 10A explicitly cover defaults occurring during the pandemic, rendering the initiation of CIRP against CD unwarranted under law. 8. The counsel for the appellant stated that different dates of default have been shown in different documents. In the notice dated 19.03.2021 under Section 13(2) of SARFAESI Act, the date of NPA is mentioned as 31.03.2020. In the Assignment of Debt documents, the date of Default as accepted by the Respondent is mentioned as 31.10.2020. Further, the counsel for ....
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....ty in light of the binding nature of the restructuring terms agreed upon by both parties. 12. The counsel for the appellant submits that the Impugned Order issued by the Ld. Adjudicating Authority is fundamentally flawed due to the omission of critical evidence, notably the recall notice dated 07.12.2020, from its findings. This omission, coupled with the incorrect reliance on the alleged default date of 02.08.2019, undermines the integrity of the Impugned Order and suggests a misinterpretation of the facts presented. The appellant contends that the failure to consider this key evidence has resulted in a legally untenable decision, and therefore, requests the Hon'ble Tribunal to set aside the Impugned Order on this ground. 13. The counsel also submitted that the RBI Circular dated 01.07.2019 clarifies that it is the bank which declares the account as NPA and not the RBI, in this regard he invited the attention to para 2.2.10 of the aforesaid circular, which is reproduced below: "2.2.10 NPA Reporting to Reserve Bank Banks should report the figures of NPAs to the Regional Office of the Reserve Bank at the end of each year within two months from the c....
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....oned are not complied. iii. revoke, cancel, alter, modify or change at any time any of the facility/ies sanctioned at its sole discretion without assigning any reasons for the same. Likewise the Bank shall also be entitled to alter, modify or change at any time any of the terms and conditions of the sanction at its sole discretion without assigning any reasons." 16. One of the mandatory terms of the sanction letter is the promoters of CD were supposed to bring in Promoter's contribution i.e. 15% of the Bank's sacrifice. This is a mandatory condition as prescribed under the RBI IRAC guidelines. 17. The counsel submitted that the Covid 19 epidemic started from March 2020 onwards. The RBI conducted inspection of the FC in September 2020- October 2020 for the financial year FY 2019-20. During the inspection by RBI, it was found that Promoter of CD never brought in his contribution in furtherance of the restructuring as mentioned in the Sanction Letter dated 17.03.2020 and hence, RBI found CD ineligible for any restructuring of their loan facilities. 18. Pursuant to inspection, Bank issued letter dated 07.12.2020 to the CD and its promoters communicating that t....
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....make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable." iii. He submitted that the Bank issued letter dated 07.12.2020 to CD informing that their loan accounts have been classified as NPA by RBI officials on 31.10.2020 as of 01.11.2019. Since the date of default is calculated from 90 days prior to the date of NPA ie. 01.11.2019, the actual date of default committed by CD was on 02.08.2019. iv. The counsel further stated that it is most important to note that RBI had declared the loan accounts of CD as NPA as of 01.11.2019 during inspection and risk assessment of Bharat Co-operative Bank Limited and the same will prevail over other dates mentioned in the present appeal as the date of NPA. v. The counsel further invited our attention to the Hon'ble Supreme Court's judgment in Laxmi Pat Sunara vs. Union Bank of India & Another (2021) 8 SCC 481 wherein in Paragraph - 43 the Court has held that original date of default does not change merely because of human error. It has been further held by the Hon'ble Supreme Court in the said judgment that the period of limitat....
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....ion under Section 7 IBC." 22. The counsel for respondent then argued on the issue, whether date of NPA determined by the RBI can be overturned merely because of inadvertent misrepresentation of an officer. In this regard he made the following submissions: i. The counsel stated that Point 2.2.7.29 of RBI IRAC guidelines sets out certain conditions which are to be complied with for restructuring of loan accounts. The same is extracted below: "2.2.7.29:-However, these benefits will be available subject to compliance with the following conditions: (v) Promoters' sacrifice and additional funds brought by them should be a minimum of 15% of banks' sacrifice." ii. The counsel submitted that RBI being a regulatory authority determined that compliance to the sanction letters were not met and hence the CD was ineligible for restructuring and to that extent sanction letter dated 17.03.2020 became void ab-initio and the same was not tenable in the eyes of law. 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. 23. The counsel further stated that....
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....ject or formally file reply to the amendment application of Respondent No. 1. Furthermore, the Ld. Adjudicating Authority while passing the impugned judgment dated 09.01.2024 has considerably dealt with the arguments of both parties on amendment carried out by Respondent No. 1 and has upheld the same. 25. The counsel submitted that, when the Appellant's company never objected when the permission to carry out amendment was sought initially, then the Appellant is barred from raising objections regarding such amendments at the stage of Appeal. He submitted that in light of the abovementioned submissions, the present company appeal filed before the Hon'ble Court deserves to be dismissed with costs. Analysis and Findings 26. We have heard the parties in detail and perused the records. Parties have also filed their written submissions which has been taken on record. 27. Upon careful examination of the facts, evidence, and submissions presented in this appeal, it is evident that the core issue revolves around the validity of the amended default date cited by the respondent and the applicability of Section 10A of the Code. The appellant has challenged the order of the A....
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....lars as specified in the various columns of the Form. There is no scope for elaborate pleadings. An application to the Adjudicating Authority (NCLT) under Section 7 of the IBC in the prescribed form, cannot therefore, be compared with the plaint in a suit. Such application cannot be judged by the same standards, as a plaint in a suit, or any other pleadings in a Court of law. 74. Section 7(3) requires a financial creditor making an application under Section 7(1) to furnish records of the default recorded with the information utility or such other record or evidence of default as may be specified; the name of the resolution professional proposed to act as an Interim Resolution Professional and any other information as may be specified by the Insolvency and Bankruptcy Board of India. 75. Section 7(4) of the IBC casts an obligation on the Adjudicating Authority to ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor within fourteen days of the receipt of the application under Section 7. As per the proviso to Section 7(4) of the IBC, inserted by amendment, by Act 26 of 201....
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....Rules there is no bar to the filing of documents at any time until a final order either admitting or dismissing the application has been passed. 93. Furthermore, the proviso to Section 7(5)(b) of the IBC obliges the Adjudicating Authority to give notice to an applicant, to rectify the defect in its application within seven days of receipt of such notice from the Adjudicating Authority, before rejecting its application under Clause (b) of sub-section (5) of Section 7 of the IBC. When the Adjudicating Authority calls upon the applicant to cure some defects that defect has to be rectified within seven days. There is no penalty prescribed for inability to cure the defects in an application within seven days from the date of receipt of notice, and in an appropriate case, the Adjudicating Authority may accept the cured application, even after expiry of seven days, for the ends of justice. 144. 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. In the absence of any express provision which ....
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.....2019, and relied on the financial records, sanction letters, and debt assignment documents provided by ASREC to substantiate the grounds for default and validate the claim. The amendment of pleadings in this case was allowed by the AA, which provided for the date of default as 02.08.2019. 35. The appellant has cited the judgement of this Appellate tribunal in Plus Corporate Ventures Private Limited vs. Transnational Growth Fund Limited, Company Appeal (AT) (Insolvency) No. 1270 of 2022, wherein it was held that defaults occurring during the COVID-19 moratorium period, covered under Section 10A of the Code are protected from Corporate Insolvency Resolution Process (CIRP) initiation. The appellant argues that their default should also fall within this COVID-19 moratorium and be protected by Section 10A. They assert that the default occurred within the period specified under Section 10A, thus rendering the initiation of CIRP legally barred. 36. However, in the present case, Unlike Plus Corporate Ventures (Supra), 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. T....
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....cluding Ramesh Kymal vs. Siemens Gamesa Renewable Power Private Limited, (2021) 3 SCC 224, and Life Insurance Corporation of India vs. Sanjeev Builders Pvt. Ltd. & Anr., (2022) SCC OnLine SC 1128. Both of these Supreme Court rulings emphasized that Section 10A provides broad protection for defaults occurring during the COVID-19 period, intending to shield financially distressed businesses from insolvency proceedings caused by the pandemic. 40. Yet, for the Section 10A protection to apply here, the appellant must demonstrate a direct link between the default and the COVID-19 impact, aligning with the findings in Ramesh Kymal and Sanjeev Builders. In this case, the respondent's contention that the original default date was August 2, 2019, prior to the pandemic, suggests that the default was unrelated to COVID-19, and therefore falls outside Section 10A's scope. The appellant's argument is further complicated by the bank's actions, as the restructuring implies acknowledgment of the pre-pandemic default rather than a fresh default related to COVID-19. Thus, the respondent's substantiation of an August 2019 default date does not support the appellant's reliance on cases such ....
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.... recall notice issued on 07.12.2020 highlights the prolonged financial distress of the corporate debtor. The appellant's argument that the restructuring agreement of March 2020 reset the default timeline lacks merit. Restructuring agreements, while providing temporary relief, do not negate pre-existing defaults unless explicitly stated. The evidence presented does not suggest that the restructuring agreement created a fresh default timeline or nullified the earlier default of 02.08.2019. This finding aligns with the principles established in precedent cases, where the courts have consistently held that restructuring efforts do not alter the classification of a loan as a Non-Performing Asset (NPA), unless significant repayments or compliance with revised terms occur. 45. 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....