NCLAT held that failure of a One-Time Settlement (OTS) cannot reset the default date and does not preclude proceedings under Section 7 of the IBC.
NCLAT affirmed the NCLT's decision to admit the Section 7 insolvency application, holding that the default by the corporate debtor occurred before the suspension period under Section 10A of the IBC and that the failure of a One-Time Settlement (OTS) cannot reset the default date and does not bar proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016.
In the appeal before the National Company Law Appellate Tribunal (NCLAT), the Suspended Director of Advantage Overseas Pvt. Ltd. contested an order from the National Company Law Tribunal (NCLT), Mumbai Bench, which admitted a Section 7 application filed by the State Bank of India (SBI). The case involved a dispute over an alleged default by the Corporate Debtor on a significant financial facility provided by SBI.
The facility, originally granted at ₹10 crore in 2013, had been substantially increased over time, reaching ₹6249.50 crore by April 2016. Despite various agreements and guarantees, the Corporate Debtor defaulted, leading SBI to declare the account as non-performing asset (NPA) in August 2018. Following the failure of a One-Time Settlement (OTS) arrangement, SBI initiated legal proceedings under Section 7 of the Insolvency and Bankruptcy Code (IBC) in March 2023 to recover ₹2730.51 crore.
The Appellant argued that the Section 7 application was barred by Section 10A of the IBC, which suspends insolvency proceedings for defaults arising on or after March 25, 2020, for a specified period. They claimed that since the default occurred after this period due to the failed OTS, the application should be dismissed. However, SBI contended that the default predated the 10A period and that the OTS failure was not a fresh cause of action but a continuation of the original default.
The NCLAT rejected the Appellant’s arguments, affirming that the default identified in the SBI’s application occurred before the 10A period, and thus the Section 7 application was valid. The Tribunal upheld the admission of the Section 7 application, noting that the OTS failure did not reset the default date and did not bar the proceedings under Section 7 of the IBC.
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