The National Company Law Appellate Tribunal ( NCLAT ) has held that the National Company Law Tribunal (NCLT) is empowered to allow the parties to amend the pleadings before the final orders in Corporate Insolvency Resolution Process ( CIRP ) proceedings are passed.
The Appellant, Mr. Puneet P. Bhatia, a suspended director of Barracks Retail India Pvt. Ltd., the Corporate Debtor (CD), has challenged the Adjudicating Authority’s (AA) decision to admit an application for Corporate Insolvency Resolution Process (CIRP) initiated by ASREC (India) Limited, Respondent No. 1/
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Financial Creditor under Section 7 of the Insolvency and Bankruptcy Code, 2016 (Code).
Barracks Retail India Pvt. Ltd. (Corporate Debtor), a garment manufacturing company, was incorporated on 25.01.2016. Bharat Co-operative Bank (Mumbai) Limited sanctioned a term loan of Rs. 5 crores and a cash credit limit of Rs. 25 lakhs, secured by assets including 41 non-agricultural plots. In 2018, the Bank approved an additional loan of Rs. 1.91 crores to facilitate the acquisition of Eye Catch Fashions Pvt. Ltd..The bank arranged a transfer of Rs. 5.25 crore directly to Eye Catch’s account to avoid NPA status. The Bank revised financial facilities for Corporate Debtor.
The Bank provided temporary relief under RBI guidelines, but the Corporate Debtor’s account was declared NPA on 01.11.2019 due to unpaid interest/overdue principal. The Bank issued a notice to recall the facilities under Section 13(2) of SARFAESI Act requiring the Corporate Debtor to pay all outstanding under all credit facility accounts within 60 days. The Bank assigned the Corporate Debtor’s debt to ASREC (India) Limited (Respondent No. 1) on 25.03.2021.
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ASREC filed a Section 7 application under the IBC, citing a default date of 31.10.2020. The date of default was amended to 02.08.2019. The Corporate Debtor had invoked Section 10A of the IBC for COVID-related exemptions.
The Adjudicating Authority admitted the CIRP application of Respondent-1, accepting the amended default date of 02.08.2019. The NCLT relied on the financial records, sanction letters, and debt assignment documents provided by ASREC to substantiate the grounds for default and validate the claim.
The issues before the Tribunal revolved around the validity of the amended default date, i.e. whether the Date of Default can be changed after filing the petition under Section 7 of the Code and applicability of section 10A of the Code.
On the issue regarding whether the NCLT can allow amendments to the date of default in applications filed under section 7 of the IBC, the court referred to the judgment of the Supreme Court in Dena Bank v. C. Shivakumar Reddy, which held that “There is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC or to the filing of additional documents apart from those initially filed along with the application in Form-1”
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It was also observed that the Adjudicating Authority might, at its discretion, decline requests to file additional pleadings/documents in cases of inordinate delay but is not barred from allowing amendments to meet the ends of justice. Such amendments however should not manipulate the limitation period but may reflect new acknowledgements of debt or judgments creating a fresh cause of action.
The Tribunal stated that for the Section 10A protection to apply, the appellant must demonstrate a direct link between the default and the COVID-19 impact. It held that the default was unrelated to COVID-19 and therefore fell outside the scope of section 10A.
The bench held that “the NCLT is empowered to allow the parties to amend the pleadings before the final orders in CIRP proceedings are passed”. It went on to hold that the amendment of the date of default had been correctly allowed by NCLT. While dismissing the appeal, the bench of Justice Rakesh Kumar Jain (Judicial Member), Mr Naresh Salecha (Technical Member) and Mr Indevar Pandey (Technical Member) held that the amendment was duly made during the CIRP proceedings before the NCLT, as per the laid down procedure following the principles of natural justice.
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