NCLAT held that Section 10A of the IBC did not apply as the default had occurred prior to the cut-off period, irrespective of the subsequent recall notice.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice Rakesh Kumar Jain (Judicial Member) and Technical Members Mr. Naresh Salecha and Mr. Indevar Pandey reviewed an appeal and held that the date of default, for the purpose of initiating CIRP under Section 7 of the IBC, is determined by the first instance of non-payment as per the loan agreement, and a subsequent recall notice does not alter the original default date—therefore, Section 10A does not apply if the default occurred before the cut-off period.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, adjudicated an appeal filed by the Promoter/Director of Yours Ethnic Foods Pvt. Ltd. (Corporate Debtor), challenging the validity of the order dated 09.10.2023 passed by the National Company Law Tribunal (NCLT), Ahmedabad. The NCLT had admitted CP (IB) No. 322/NCLT/AHM/2022 under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). The appeal contested the findings of debt and default against the Corporate Debtor, raising the issue of whether the application under Section 7 was barred by Section 10A of the IBC.
Svakarma Finance Pvt. Ltd. (Financial Creditor) had sanctioned a working capital term loan to the Corporate Debtor through a loan agreement dated 25.07.2019, with a tenure from 20.08.2019 to 20.07.2022 at an interest rate of 14% per annum. The loan was disbursed in two tranches, and repayment was to be made as per the schedule annexed to the agreement. The Financial Creditor alleged that the Corporate Debtor defaulted on its repayment obligations in January 2020. Specifically, the instalment due on 20.01.2020 was paid belatedly in February 2020, and that too without the penal interest, while the instalment due on 20.02.2020 remained unpaid. The Financial Creditor subsequently issued a loan recall notice on 06.11.2020 under clause 10.3 of the agreement, demanding repayment of the outstanding amount.
The Appellant contended that the recall notice provided a 15-day period for repayment, which expired on 21.11.2020, thereby making it the date of default. Since this date fell within the period covered under Section 10A of the IBC (25.03.2020 to 25.03.2021), the application under Section 7 was claimed to be non-maintainable. The Appellant relied on the NCLAT judgment in Plus Corporate Ventures Pvt. Ltd. v. Transnational Growth Fund Ltd., where an application under Section 9 was held to be barred due to the occurrence of default during the Section 10A period.
The NCLAT, after reviewing the facts and arguments, held that the default had occurred much earlier, in January or February 2020, and not upon the issuance of the recall notice in November 2020. The Tribunal observed that the recall notice was merely a procedural step invoking the consequences of default under clause 10.3 of the agreement and did not itself create a fresh default. Since the default predated 25.03.2020, the provisions of Section 10A were held to be inapplicable. The Tribunal also distinguished the case relied upon by the Appellant, noting that in that instance, the default had indisputably occurred within the Section 10A period.
Based on these findings, the NCLAT upheld the order of the NCLT admitting the application under Section 7 of the IBC and rejected the Appellant’s challenge. The Tribunal reaffirmed that Section 10A does not extend to defaults that occurred prior to 25.03.2020, even if a recall notice was issued during the exemption period.
Mr. Atul Sharma, Mr. Kuldeep and Mr. Shivanshu Kumar, Advocates represented the Appellant.
Mr. Himanshu Chaube and Mr. Saumitra Chaturvedi, Advocates appeared for Respondent No.1.
Mr. Anoop Prakash Awasthi, Mr. Parthvi Ahuja and Ms. Prapti Singh, Advocates appeared for Respondent No. 2.
Subscribers can access the Case, including Case Analysis, Ratio Decidendi, Headnotes, Briefs, Case Research, Cited Case Laws, Case Law Cross-references, and the latest updates on Statutes, Notifications, Circulars, Guidelines, Press Releases and more.
Click on the following Citation/Link to access these resources:
Comentarios