NCLAT has determined that the Loan Recall Notice Date might not be considered the relevant Date of Default under the Insolvency and Bankruptcy Code.
The 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 date of default, for the purpose of initiating insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code, is determined by the occurrence of an 'event of default'. The NPA declaration date, marking 90 days of continued default in loan repayment, constitutes a valid default date. Appellate Authority has determined that the Loan Recall Notice Date might not be considered the relevant Date of Default under the Insolvency and Bankruptcy Code. This determination is grounded in the statutory framework and supported by judicial precedents.
In the case presented before the NCLAT, Mr. Milind Kashiram Jadhav, the Appellant, contested the default date in an appeal lodged under Section 61 of the Insolvency and Bankruptcy Code, 2016. The appeal was against the NCLT's order admitting the Section 7 Application filed by the State Bank of India against Jabalpur MSW Pvt. Ltd. Jadhav argued that the default occurred after receiving a loan recall notice on August 18, 2020, falling within the Section 10A period. He emphasized the necessity of a cure period as per the loan sanction letter's terms. On the other hand, the State Bank of India, the Respondent, asserted that once a debt remains in default for 90 days, the loan becomes classified as a Non-Performing Asset (NPA), making the entire outstanding amount due. They contended that the NPA declaration date of September 27, 2019, constituted the default date. Both parties presented their positions regarding the interpretation of default and cure period clauses in the loan documents.
The Respondent emphasized the necessity of debt repayment post-NPA declaration. After considering the arguments, the Adjudicating Authority decided in favour of the Respondent, concluding that the NPA declaration date constituted the default date, and initiating insolvency proceedings was permissible. In response to the Appellant's argument that NPA classification alone doesn't accelerate the debt maturity, the NCLAT reasoned that the Corporate Debtor's failure to service the loan instalment constituted an 'event of default'. Despite the Corporate Debtor's contention that the default date should be the Loan Recall Notice date, the NCLAT determined that the NPA declaration date (September 27, 2019) was the valid default date. This decision was supported by judicial precedents and the specific circumstances of the case.
NCLAT Bench observed, "...Despite subsequent partial payments made by the borrower, the NPA status and default persisted, indicating a continuous state of default. Consistent with established judicial precedents and the specific circumstances of the case, the date of NPA classification serves as the valid "Date of Default" for initiating insolvency proceedings."
"Even after the NPA classification, the borrower remained in default. Consequently, September 27, 2019, the date of NPA classification, stands as the "date of default" under the Insolvency and Bankruptcy Code (IBC), superseding any subsequent events, such as the loan recall notice issued on August 18, 2020. The Adjudicating Authority's decision to admit the Bank's application for initiating Corporate Insolvency Resolution Process (CIRP) against the Company was apt and in accordance with the provisions of the IBC." The Bench noted.
The NCLAT also noted that the Corporate Debtor's subsequent partial payments did not regularize the accounts, and the default persisted. Therefore, the NPA classification date was upheld as the "date of default" for initiating insolvency proceedings. The Adjudicating Authority's decision to admit the Bank's application for initiating a Corporate Insolvency Resolution Process (CIRP) against the Company was upheld, and the appeal was dismissed without imposing any costs. The judgment reinforced the importance of adhering to loan repayment obligations and the significance of NPA classification as a valid indicator of default under the Insolvency and Bankruptcy Code.
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