TaxTMI 
TaxTMI 
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2025 (11) TMI 528
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....ruction Company Limited/ Financial Creditor (FC) under Section 7 of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as 'Code') and initiated Corporate Insolvency Resolution Process (CIRP) against the Majestic Hotels Limited (Corporate Debtor) and appointed Mr. Navneet Gupta, as Interim Resolution Professional, who is Respondent No. 1 here. 2. Mr. Kewal Krishan Sharma, the Suspended Director of M/s Majestic Hotels Limited, and the Appellant here, has preferred this appeal challenging the said order primarily on the grounds, that there was no subsisting financial default; that the alleged default fell within the protection period of Section 10A of the Code introduced during the COVID-19 pandemic; and that the Adjudicating Authority failed to appreciate the continuous payments; restructuring arrangements; and contractual cure period agreed between the parties prior to the initiation of proceedings. Facts of the Case 3. The brief facts of the case are as given below: (i) The Corporate Debtor, M/s Majestic Hotels Limited, which is engaged in the hospitality business, had over the years availed multiple term loans from financial institutions for the p....
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....19,09,37,500/-. This offer was accepted, and a sanction letter dated 27.12.2017 was issued by UVARC approving a settlement-cum-restructuring plan, along with the sanction of a fresh Working Capital Term Loan (WCTL) of Rs. 4.75 crores to assist the revival of the hotel operations. (viii) The sanction terms provided that the settlement amount of Rs. 16.25 crores and an interest-free additional amount of Rs. 2.84 crores would be repaid in 54 monthly instalments, commencing from 31.01.2019, with an express provision of a 45-day cure period from the due date, before any event of default could be declared. The arrangement was duly formalized through a Memorandum dated 29.12.2017, setting forth all terms of repayment and continuation of facilities. (ix) In pursuance of this restructuring, a loan agreement dated 15.01.2018 for the WCTL of Rs. 4.75 crores was executed, followed by a second sanction letter dated 06.08.2018 granting an additional WCTL of Rs. 4 crores, and a third sanction letter dated 09.12.2019 sanctioning Rs. 3.50 crores, executed through a corresponding loan agreement dated 12.12.2019. These were extended to support operational liquidity of the Corporate ....
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....cating Authority, Mr. Kewal Krishan Sharma, the Suspended Director of the Corporate Debtor has filed this appeal under Section 61(1) of the Insolvency and Bankruptcy Code, 2016. Submissions of the Appellant 4. Ld. Counsel for the Appellant submits that the loan initially assigned to the Financial Creditor (hereinafter "FC") from Tourism Finance Corporation of India (TFCI) and IFCI was settled and restructured on 27.12.2017 for an aggregate sum of Rs. 16.25 Crore, along with an additional loan of Rs. 2,84,37,500. The Clause 1 of the repayment schedule provides for a "cure period." Subsequently, three Working Capital Term Loans (WCTL) were sanctioned viz. WCTL-I on 15.01.2018 for Rs. 4.75 Crore, WCTL-II on 06.08.2018 for Rs. 4 Crore, and WCTL-III on 09.12.2019 for Rs. 3.50 Crore. All these loans were subject to uniform terms and conditions stipulated in the loan documentation. 5. Ld. Counsel submitted that the Section 7 petition filed by the FC was not maintainable as it was barred under Section 10A of the Insolvency and Bankruptcy Code, 2016. As per the FC's own record, the date of default was January 2020. The same date appears in the checklist annexed with the Section 7 a....
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....ount before the NCLT. The mere assertion that payments made by the Appellant did not cure the default is unsupported by any documentary evidence. The FC has failed to explain whether, after accounting for payments made between 01.01.2020 and 20.03.2020, any amount for January 2020 remained unpaid. 11. Ld. Counsel submitted that even assuming, without admitting, that there were dues for February or March 2020, those instalments were covered by the statutory protection under Section 10A of the IBC. The February 2020 instalment, due on 29.02.2020, carried a 45-day cure period up to 15.04.2020, which squarely falls within the 10A moratorium period notified due to the onset of COVID-19. Likewise, any instalment for March 2020 would also be within the prohibited period. Therefore, even on a hypothetical basis, such defaults could not give rise to a maintainable cause under Section 7. The FC, moreover, concealed material documents and failed to disclose the effect of the cure period, while filing the petition, rendering its initiation premature and contrary to Section 10A's legislative intent. 12. Ld. Counsel submits that the recall notice dated 08.12.2020 issued by the FC also refe....
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....03.2025 with liberty to apply under Section 12A of the Code. This demonstrates the bonafide intention of the Corporate Debtor to clear its dues and maintain solvency, contrary to the FC's attempt to push the company into insolvency proceedings without just cause. 16. It is submitted by Ld. Counsel that the impugned order is erroneous both on facts and law. The NCLT wrongly held that the Corporate Debtor had confused the concept of "default" under Section 10A with an "event of default" under the loan documents. The definition of default under Section 3(12) of the IBC clearly refers to non-payment "when whole or any part becomes due," which has to be ascertained from the loan agreement itself. 17. He submitted that in Para 28, of the impugned order, the NCLT incorrectly recorded that the Corporate Debtor had admitted a default on 16.03.2020, which was never the Appellant's position. The Tribunal failed to appreciate that on 19.03.2020, the FC had disbursed Rs. 70 Lakh despite the alleged default, which conclusively disproves the existence of any event of default. 18. Ld. Counsel stated that in Para 37, the NCLT erred in observing that even if additional time was granted to r....
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....g in all payments received from the Corporate Debtor up to the date of filing of the petition. It is submitted that the Appellant's attempt to suggest that payments made between 01.01.2020 and 09.04.2020 were not accounted for is misleading and factually incorrect. Even after taking into account all such payments, the January 2020 instalment remained partly unpaid, thereby constituting a valid and continuing default within the meaning of Section 3(12) of the Code. 23. Ld. Counsel further submitted that the Corporate Debtor did not pay the entire instalment amount by 31.01.2020. The Adjudicating Authority, in para 20 of the Impugned Order, rightly concluded that default under Section 3(12) of the Code arose on 01.02.2020. The said finding is based on admitted facts and requires no interference. 24. The counsel stated that even the Appellant has admitted that the full amount of the January 2020 instalment was not paid by 16.03.2020, the expiry of the 45-day grace period stipulated in Clause 6 of the MoU. Hence, an "event of default" occurred automatically upon such non-payment, as per the contractual terms agreed between the parties. 25. He further submitted that Clause 6 of....
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....submitted by Ld. Counsel that the Appellant's attempt to misread the phrase "last quarter" in the FY 2019-20 balance sheet to mean that the dues were only for the quarter January-March 2020 is wholly erroneous. The same balance sheet itself records that the repayment obligation under the MoU was in 42 equal monthly instalments from January 2020 to June 2022. Therefore, the reference to "pending since January 2020" clearly indicates that the very first instalment was not paid and not that the dues were quarterly. 31. He further submitted that the entire argument regarding the alleged "cure" of the January 2020 default is misleading. The significance of the January 2020 date lies in, only determining the applicability of Section 10A of the Code. Once it is shown that the default occurred prior to 25.03.2020, Section 10A stands excluded. Thereafter, it was incumbent upon the Appellant to show that all instalments up to March 2022 were paid, which is admittedly not the case. The last payment was made on 09.04.2020, after which no further payments were ever made. Hence, the default clearly "continued to subsist," as correctly recorded in the Section 7 Petition. 32. The counsel fur....
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....cedural and cannot alter the date of default once the event has occurred in terms of the agreement. 37. He further submitted that even the recall notice dated 08.12.2020 itself records that the Corporate Debtor had "defaulted in making the payments from January 2020 onwards," and as of 30.11.2020, eleven monthly instalments aggregating Rs. 7,72,70,033/- (principal) and Rs. 3,00,72,808/- (interest), together with penal interest, were overdue. The Corporate Debtor never disputed or replied to this notice, and thus the contents thereof stand admitted. 38. Ld. Counsel submitted that the Corporate Debtor made its last payment on 09.04.2020, after which not a single rupee was paid till the admission of the petition on 03.07.2025. This continuous non-payment for over two years is conclusive proof of sustained default and justifies the admission of the petition under Section 7 of the Code. 39. Summing up his arguments Ld. Counsel submitted that the Appellant's claim that the Corporate Debtor is a profitable and bona fide concern is completely unfounded. The Corporate Debtor's history reveals persistent and chronic default. Its accounts were classified as Non-Performing Assets by i....
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....020 date as an "event of default." The Appellant relied on Clause 10 of the WCTL-I Loan Agreement, which provides that in case of any event of default, the lender is to issue written notice and suspend further disbursements. Since neither a notice was issued nor any disbursement was suspended, rather, an additional tranche was released, the Appellant argues that even by the lender's own conduct, no default had been triggered. 44. It was further contended that the NCLT erred in overlooking that the Financial Creditor had failed to produce certified statements of account as required under the Bankers Books Evidence Act, 1891. The petition was therefore incomplete and should have been rejected at the threshold. The Appellant also stressed that the Corporate Debtor was a solvent and revenue- generating five-star property, and that a minor delay of a few days could not justify dragging it into insolvency proceedings. Reliance was placed on 'Indiabulls Housing Finance Ltd. v. Revital Reality Pvt. Ltd., CA (AT)(Ins) No. 994 of 2022', wherein this Appellate Tribunal emphasized that the intent of the IBC is to keep viable entities solvent and not to admit CIRP petitions "on the drop of a....
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....tion 18 of the Limitation Act. Therefore, the plea that default stood cured or that no default occurred before March 2020 was not only contrary to record, but also contradicted by the Corporate Debtor's own statements. 50. The Respondent argued that under the settled law laid down by the Hon'ble Supreme Court in 'Innoventive Industries Ltd. v. ICICI Bank, [(2018) 1 SCC 407]', and 'E.S. Krishnamurthy v. Bharath Hi-Tech Builders Pvt. Ltd., [(2022) 3 SCC 161]', once the Adjudicating Authority is satisfied that a financial debt exists and default has occurred, it has no discretion but to admit the petition. The NCLT's decision, therefore, was entirely justified and requires no interference. 51. Respondent argues that Section 10A of the Code, provides that "no application for initiation of corporate insolvency resolution process shall ever be filed for any default arising on or after 25 March 2020." The legislative intent, as explained by the Hon'ble Supreme Court in 'Ramesh Kymal v. Siemens Gamesa Renewable Power Pvt. Ltd., [(2021) 3 SCC 224]', is to protect corporate debtors whose defaults arose on or after 25.03.2020, during the extraordinary disruption caused by the COVID-19 p....
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....tled to recover the total outstanding dues as per the decree, without any further notice. 57. The language of the clause is unambiguous. It makes the "occurrence" of default automatic and self-executing upon non-payment within 45 days. It does not vest any discretion in the creditor to condone delay or extend time. Once the 45-day period expired on 16.03.2020 without full payment of Rs. 95,91,034/- (the January 2020 instalment), the event of default stood conclusively triggered. The MoU ceased to survive thereafter. 58. The order of DRT in OA 715 of 2017 passed in IA No. 1602/2018, on 26.10.2018 took on record the settlement between FC and CD vide the aforesaid MoU dated 29.12.2017 is extracted below: "IA No. 1602/2018 7. This is a joint application filed on behalf of applicant as well as defendants for recording the terms of settlement in terms of the Sanction Letters dated 27.12.2017 and 6.8.2018; the Memorandum of Understanding (MoU) dated 29.12.2017 and the 'Working Capital Tern Loan Agreement (WCTL-) & H) dated 15.1.2018 & 8.8.2018 and pass consent / compromise decree thereby issuing Certificate of Recovery in favour of UVARCL and against al the def....
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....l oblige the Lender to sell, hire or deal with the properties and the Lender shall be entitled to proceed against the Borrower independent of such other security. The Borrower agrees to accept the Lender's accounts in respect of such sale, hire, dealing or otherwise as conclusive proof of the correctness of any sum claimed to be due from the Borrower. In case of any deficit, the deficit amount shall be recovered by the Lender from the Borrower." 62. Similar clauses have been provided in all three WCTL's. This clause basically gives the lender unequivocal rights to enforce the recovery of entire dues, control of the loan account and enforcement of securities. 63. Under Section 63 of the Indian Contract Act, waiver of contractual rights must be intentional, clear, and unequivocal. The mere act of accepting partial or delayed payments does not, by itself, amount to waiver of an accrued right to treat the contract as terminated. Similarly, revival of a lapsed contract requires fresh mutual consent. In this case, neither is pleaded nor proved. The Financial Creditor's acceptance of post-default payments, without prejudice to its rights, was in conformity with Section 60 of the....
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....e" the default under the 'Term Loan' which is governed by MoU dated 29.12.2017. The release of a pre-sanctioned tranche cannot be interpreted as waiver of contractual rights, particularly when the MoU itself provides that upon default, all concessions lapse automatically. In commercial practice, lenders often honour disbursements already in pipeline without intending waiver. The Appellant's theory of estoppel is therefore devoid of merit. 68. Even otherwise, the Corporate Debtor's subsequent admission belies its contention. Its audited balance sheets for three consecutive years i.e. FYs 2019-20, 2020-21, 2021-22 and 2022-23, expressly state that "repayment of loan to UVARCL is pending since January 2020." This admission establishes that the default was continuous and never cured. The Appellant's plea of "waiver by acceptance" is thus contrary to its own record. Relevant portions of the Auditor's Comments on balance sheets for 2019-20 and 2022-23 have been extracted for illustration purposes: "Balance sheet of 2019-20 "Textual Information (44) Nature of security DURING THE FINANCIAL YEAR 2017-18, THE COMPANY HAD AVAILED A TERM LOAN FROM M/S UV ASSET RECONS....
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....S Rs. 11,060,451/....." [Emphasis supplied] 69. Hence, both on facts and on settled principles of contract law, the default of January 2020 stood as a valid and of prior to Section 10A period, the default has been continuing since then as established by the notes of the auditors in the balance sheet of FY 2022-23. Non-payment within the cure period of 45 days, also made the MoU inoperative from 16.03.2020. 70. The contention that the petition was incomplete for want of certified statements of account is equally untenable. While such certification is ordinarily desirable, the existence of financial debt and default can be established by other reliable evidence as well, including contractual documents, payment schedules, recovery decrees, and admissions by the debtor. The Adjudicating Authority was thus justified in relying upon the MoU, DRT order, and balance sheets, all of which independently proved the default. 71. We now examine the judgments relied upon by the Appellant in the context of the present factual matrix of this case: i. Ramesh Kymal v. Siemens Gamesa Renewable Power Pvt. Ltd., [2021 AIR SC 833]: In this case, the Hon'ble Supreme Court interpreted ....
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....Debtor's audited financial statements admitting default since January 2020. The existence of debt and default is therefore unambiguously proved on record. Accordingly, the ratio in IDBI Bank Ltd. is distinguishable and affords no relief to the Appellant. iv. JC Flowers Asset Reconstruction Pvt. Ltd. v. Leisure Ltd., [Company Appeal (AT) (Insolvency) No. 2103 of 2024]: The decision of this Tribunal in this case was based on the failure of the financial creditor to produce primary loan documentation and certified account statements, leading to the conclusion that default was unsubstantiated. The Tribunal observed that mere assertions, without documentary support cannot justify admission under Section 7. In the present case, however, the Respondent produced all essential documents, proving the financial relationship and the continuing default. The record before the Adjudicating Authority was complete and comprehensive, leaving no factual ambiguity. Therefore, the ratio of JC Flowers does not apply to the present matter. v. Carissa Investments LLC v. Indu Techzone Pvt. Ltd., [Company Appeal (AT) (CH) (Insolvency) No. 124 of 2022]: In this case, the principal issue was....