NCLT Cannot Suo Moto Amend Date of Default in Insolvency Application Unless Amendment Application is Filed: NCLAT [Read Order]

The Adjudicating Authority cannot suo moto change the date of default specified in the insolvency application unless an amendment application is filed, according to the National Company Law Appellate Tribunal ( NCLAT ) in New Delhi. Failure to do so would amount to exceeding its jurisdiction, which is illegal.

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In order to initiate the Corporate Insolvency Resolution Process (CIRP) against Gannon Dunkerley & Company Ltd., the Corporate Debtor, for an alleged outstanding debt of ₹10.18 crore resulting from multiple work orders issued by the Corporate Debtor between 2009 and 2018, Royal Construction, an operational creditor, filed a petition under section 9 of the Insolvency and Bankruptcy Code, 2016 (Code). Due to a pre-existing dispute and the fact that the date of default came within the Code's Section 10A term, the Adjudicating Authority dismissed the petition, making it unmaintainable. The current appeal has been filed against this order.

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The appellant argued that they had successfully carried out and finished the task that was given to them. Nevertheless, despite the Operational Creditor's repeated reminders, the Corporate Debtor only made partial payments and did not pay the entire amount owed. It was further contended that rather than relying on the date of default that the appellant inadvertently included in the demand letter, the adjudicating authority ought to have taken into account their arguments and reviewed the papers on file to ascertain the true date of default.

The Tribunal noted that, according to the Operational Creditor, the dates of default for the outstanding debt are 3 May 2020, 15 August 2020, and 1 January 2021. Additional information about these dates can be found in Form 3 of the demand notice dated January 27, 2022.

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 The bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member) found that the defaults took place between March 3, 2020, and January 1, 2021, which is obviously within the time frame that is forbidden under section 10A of the code. According to section 10A and the Supreme Court's ruling in the Ramesh Kymal case, defaults that occur during this time frame cannot be used as justification for starting insolvency proceedings or taken into account when determining debt and default.

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The tribunal held that no liability can be fastened on the corporate debtor for default committed during Section 10A period. The adjudicating authority has, therefore, not committed any error in holding the Section 9 application as non-maintainable.

The Tribunal, while dismissing the appeal, observed that the Appellant's arguments that the Adjudicating Authority should have modified the date of default cannot be accepted. If any change was required, the onus was on the Appellant to seek permission to file an amendment application. The Adjudicating Authority cannot suo moto amend the date of default without any amendment application filed in this behalf as it would be tantamount to exceeding its jurisdiction.

To Read the full text of the Order CLICK HERE

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