The Section 9 application was dismissed as the debt fell below the statutory threshold and included defaults barred under Section 10A of the IBC.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka reviewed an appeal and held that the Section 9 application under the IBC is non-maintainable if the claimed debt includes defaults protected under Section 10A and the remaining amount falls below the statutory threshold of Rs. 1 crore, with interest and reimbursements excluded unless expressly agreed upon in the original contract.
In this case, the National Company Law Appellate Tribunal (NCLAT) addressed an appeal filed by M/S Samrat Restaurant, represented by its Managing Partner, challenging the dismissal of its Section 9 petition by the National Company Law Tribunal (NCLT), Mumbai. The Appellant sought to initiate the Corporate Insolvency Resolution Process (CIRP) against the Respondent, Brewcrafts Microbrewing Pvt. Ltd., for alleged default of Rs. 5.22 crores, citing unpaid license fees, wrongful reimbursements, and accrued interest under a Leave and License (L&L) agreement dated 04.05.2017. The NCLT dismissed the petition on the grounds that part of the claimed amount fell within the moratorium period under Section 10A of the Insolvency and Bankruptcy Code (IBC), 2016, which prohibited insolvency actions for defaults during the COVID-19 period, and the remaining amount did not meet the statutory threshold of Rs. 1 crore under Section 4 of the IBC.
The Appellant argued that the default should be deemed to have occurred on 31.03.2023, as evidenced by a One-Time Settlement (OTS) letter, where the Respondent allegedly agreed to pay Rs. 1.06 crores along with 18% interest. The Appellant contended that the NCLT failed to appreciate the Respondent's acknowledgments of debt and the continuing nature of the default. However, the Respondent denied the existence of a formal settlement and asserted that the claimed debt was inflated by including interest and reimbursements not agreed upon under the L&L agreement.
The NCLAT upheld the NCLT’s decision, affirming that the Appellant’s computation of debt was flawed and excluded arbitrary claims for interest and reimbursements. It found that the revised rental arrangements during the pandemic period were not duly accounted for by the Appellant, resulting in a recalculated debt amount of Rs. 35,02,857, which was below the mandatory threshold for CIRP initiation. Relying on Krishna Enterprises v. Gammon India Ltd., the NCLAT reiterated that interest could not be included as part of the debt unless explicitly provided for in the original agreement. The Tribunal further confirmed the exclusion of Rs. 69,30,442, representing defaults during the Section 10A moratorium period, as such defaults were immune from insolvency proceedings.
The NCLAT rejected the Appellant’s assertion that subsequent communications shifted the default date to 31.03.2023, holding that temporary modifications during the pandemic did not extinguish prior defaults covered by Section 10A. The Tribunal found that the Appellant had artificially inflated the claims by omitting relevant adjustments and including unsubstantiated reimbursements. Consequently, the NCLAT dismissed the appeal, affirming the NCLT’s decision that the Section 9 application was not maintainable, as the debt amount failed to meet the statutory threshold and included amounts barred by Section 10A of the IBC.
Mr. Ramchandra Madan, Advocate represented the Appellant.
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 Release and more.
Click on the Citation/Link to access these resources
Comentários