NCLAT held that the classification of a loan as a Non-Performing Asset (NPA) date constitutes a Date of Default under the Insolvency and Bankruptcy Code.
National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra & Arun Baroka (Technical Members) was hearing an appeal and observed that the classification of the loan as a Non-Performing Asset (NPA) on 27.09.2019 constituted the date of default under the IBC, rejecting the appellant's contention that the default date should post the loan recall notice, and affirmed that subsequent partial payments did not cure the default.
The appeal, filed under Section 61 of the Insolvency and Bankruptcy Code, 2016, involved the NCLT admitting an application by SBI under Section 7 of the IBC against Jabalpur MSW Pvt. Ltd., initiating insolvency proceedings. The State Bank of India (SBI) claimed a default exceeding Rs. 46.80 crores, dating back to 27.09.2019, when the loan was classified as a Non-Performing Asset (NPA), with the loan recall notice issued on 11.08.2020.
The appellant contested the default date, asserting it occurred on 18.08.2020, post the loan recall notice, and argued that this date falls within a period barred under Section 10A of the IBC. They contended that a cure period was required as per the loan sanction letter before accelerating the loan. The appellant highlighted payments made even after the loan was classified as an NPA, arguing these payments indicated a cure of any default.
SBI, in its submissions, argued that as per RBI guidelines, the loan was classified as an NPA on 27.09.2019, following a 90-day default period. They maintained that the default continued post this classification. They emphasized that post-NPA classification, the entire outstanding amount becomes due and payable, and the loan recall notice provided the Corporate Debtor with an opportunity to repay the outstanding dues. The NCLT's role was to ascertain the existence of debt and default, and the Section 7 application was filed within the permissible period, with the NPA date considered the default date.
The NCLAT referenced several judgments supporting the NPA date as a valid default date, including rulings from the Supreme Court. The Tribunal heard counsels of both parties and reviewed the documents submitted. The appellant argued for the default date to be August 11, 2020, due to payments made between the NPA declaration and the Recall Notice, contending that a cure period notice should have been provided as per the loan agreement. They asserted that the default would have fallen within the period barred under Section 10A of the IBC (March 25, 2020, to March 24, 2021).
SBI argued that the default date was September 27, 2019, since the loan had remained unpaid for more than 90 days. They stated that the Loan Recall Notice was an additional opportunity to pay, not a requirement for establishing default, and cited Supreme Court judgments supporting NPA classification as a valid default date. SBI acknowledged some payments after the NPA declaration but argued they were insufficient to regularize the account, with the default continuing. The rejection of the Corporate Debtor's One-Time Settlement proposals was highlighted as an admission of debt and default.
The Appellate Tribunal identified key issues: whether the Adjudicating Authority was correct in admitting the Bank's application for initiating CIRP against the Company, and whether September 27, 2019, or August 18, 2020, constituted the "date of default" under the IBC. The findings revealed that the Corporate Debtor owed Rs. 46.80 crores as of the NPA declaration date, which was sufficient to initiate proceedings. The NPA classification date was deemed the default date, and upon NPA classification, the entirety of outstanding dues became immediately due and payable. The borrower failed to rectify the default despite having the opportunity, leading to a continued default status. The Bank's pursuit of resolution under the IBC was legitimate and within its rights.
Ultimately, the NCLAT upheld the NCLT’s decision, accepting the date of NPA (27.09.2019) as the default date, thus validating the initiation of insolvency proceedings by SBI under Section 7 of the IBC. The appellant's arguments regarding the cure period and payments post-NPA were dismissed, emphasizing the continuous nature of the default once classified as an NPA. The appeal was dismissed without costs.
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