![](https://static.wixstatic.com/media/d515a3_c1b9b022c9eb40c9b10f3364a50edae9~mv2.jpg/v1/fill/w_660,h_440,al_c,q_80,enc_auto/d515a3_c1b9b022c9eb40c9b10f3364a50edae9~mv2.jpg)
NCLAT held that the intent of the IBC, complemented by the RBI guidelines and Section 10A, was to sustain corporate debtors during the unprecedented financial distress caused by the pandemic, rather than push them into insolvency,
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice Rakesh Kumar Jain (Judicial Member) and Naresh Salecha & Indevar Pandey (Technical Members) was hearing an appeal and observed that the intent of the IBC, complemented by the RBI guidelines and Section 10A, was to sustain corporate debtors during the unprecedented financial distress caused by the pandemic, rather than push them into insolvency. The NCLAT Bench dismissed the appeal, affirming that CIRP could not be initiated under the given circumstances.
Yes Bank Limited filed an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016, challenging the order dated 13.06.2022 by the NCLT, Allahabad Bench, in Company Appeal (AT) (Insolvency) No. 1052 of 2022. The appeal pertained to the financial default of Laxmi Oil and Vanaspati Private Limited (the corporate debtor). Following an assignment agreement with Axis Bank on 16.12.2022, J.C. Flowers Asset Reconstruction Private Limited was substituted as the appellant.
The corporate debtor had initially availed credit facilities amounting to Rs. 10 Crores, later enhanced to Rs. 20 Crores. The corporate debtor defaulted on interest payments from November 2019 onward, despite repeated reminders. Consequently, Yes Bank declared the debtor as a Non-Performing Asset (NPA) on 20.07.2020 and subsequently filed an application under Section 7 of the Code to initiate the Corporate Insolvency Resolution Process (CIRP). However, the NCLT dismissed the application, citing that the default date fell within the period protected by Section 10A of the Code, introduced to protect businesses impacted by the COVID-19 pandemic.
Yes Bank contended that the default occurred before the protected period specified under Section 10A and argued that the NCLT misinterpreted the applicability of Section 10A. The appellant sought to overturn the NCLT's order and initiate CIRP against the corporate debtor, asserting that the initial default date was 28.02.2020.
In its conclusive judgment, the NCLAT acknowledged that the appellant claimed a financial debt amounting to Rs. 25,99,34,488.25 as of 06.09.2021, with the default date recorded as 28.02.2020 and the NPA date as 20.07.2020. The corporate debtor was notified to comply with the facility agreement via a letter dated 20.12.2019. The debtor's failure to make repayments by 28.02.2020 led to the default, subsequent NPA classification on 20.07.2020, and a loan recall notice issued on 27.08.2020.
The NCLAT observed that while the claimed default date of 28.02.2020 was before the 25.03.2020 threshold set by Section 10A, both the loan recall notice and the NPA date fell after this threshold. The appellant argued that installments were due on the last date of each month and payable on the first date of the following month, implying the default should be considered as 01.03.2020. The NCLAT emphasized that for CIRP initiation under Section 7, a default must occur, defined as the non-payment of debt when due and payable.
The NCLAT also referenced the RBI circular dated 27.03.2020, which provided a moratorium on payments from 01.03.2020 to 31.05.2020, later extended to 31.08.2020. As a result, the corporate debtor was protected under these guidelines and Section 10A, precluding the consideration of default during this period.
The NCLAT concluded that given the protections under the RBI guidelines and Section 10A, the appellant could not initiate CIRP. The judgment emphasized the IBC's objective to sustain corporate debtors rather than unnecessarily push them into insolvency or liquidation. Consequently, the appeal was dismissed, and the appellant was advised to pursue other legal remedies to recover the debt. The appeal was dismissed without costs, and any interlocutory applications were closed.
Subscribers can access the case, along with case analysis, case research, ratio decidendi, headnotes, briefs, caselaw cross-references, etc. etc.
Click on the Citation
Comments