No Bar to Accepting Application u/s 7 of IBC filed within 3 years of OTS Proposal: NCLAT [Read Order]
It was found that the application under Section 7 was filed by the Bank on 13.03.2023 i.e. well within three years from the submission of the OTS proposal
No Bar – Accepting Application – IBC – OTS Proposal – NCLAT Bar – Accepting Application – IBC – OTS Proposal – NCLAT – taxscan
No Bar – Accepting Application – IBC – OTS Proposal – NCLAT Bar – Accepting Application – IBC – OTS Proposal – NCLAT – taxscan
The Principal Bench of the National Company Law Appellate Tribunal ( NCLAT ) has held that there is no bar to accepting applications under section 7 of the Insolvency Bankruptcy Code ( IBC ) filed within 3 years of OTS proposal.
The Corporate Debtor - Advantage Overseas Pvt. Ltd. was extended a financial facility by the State Bank of India. Initially, a facility of Rs.10 Crores was granted on 15.03.2013. The Board of Directors of the Corporate Debtor resolved to avail the initial facility and to create an equitable mortgage over certain properties of the Corporate Debtor.
A Loan-cum-Hypothecation Agreement dated 23.03.2013 was executed between the State Bank of India and the Corporate Debtor. A Guarantee Agreement was also executed in favour of the State Bank of India by the Personal Guarantors - Mr. Jijo John and Mr. Maneesh Kumar Singh. Guarantee Agreement was executed on 23.03.2013.
On a request made by the Corporate Debtor, facility was enhanced to an aggregate amount of Rs.51 Crore and Letter of Arrangement dated 17.12.2014 was issued. On April, 2016, the Corporate debtor again approached the State Bank of India for renewal and an increase/ enhancement of the facility. By Letter of Arrangement extended facility of aggregating to Rs.6249.50 Crores was granted.
The Adjudicating Authority issued notice in the Section 7 application. Reply was filed by the Corporate Debtor. The Adjudicating Authority after hearing both the parties by impugned order dated 10.11.2023 admitted the Section 7 application.
It was submitted that the Application filed by the State Bank of India under Section 7 was barred by Section 10A and the Adjudicating Authority committed error in admitting the Section 7 application. It was submitted that as per the OTS dated 05.09.2020 amount of Rs.165.96 Crore was to be paid within six months from the date of conveying sanction of OTS with regard to which payment default occurred on 04.03.2021 i.e. after six months, which was within 10A period, hence, the application being hit by Section 10A was liable to be rejected.
It was further submitted that the payment within six months of Rs.165.96 Crores was to be paid from the source of funds to come from the surplus available through sale proceeds of I.T. Parks at Kochi and Trivandrum, which were mortgaged to erstwhile Syndicate Bank which sales were prohibited by DRT, hence, the I.T. Parks at Kochi and Trivandrum could not be sold and there was no source of fund for making the said payment.
Counsel for the Appellant has also referred to the notice issued by the State Bank of India, which clearly indicates that default took place on 04.03.2021 i.e. within the 10A period. The application filed by the Bank under Section 7 was barred by time since the date of alleged default is mentioned as 08.08.2018 from which date three year’s period came to end on 08.08.2021.
The OTS itself contemplates that in case of any shortfall from the source of funds indicated, the company promoters shall meet the same from other sources. It was submitted that the submission that application is barred by time is wholly erroneous and incorrect. There was acknowledgement by the Corporate Debtor in its Financial Accounts ending 31.03.2019 and 31.03.2020 and limitation shall clearly stand extended. The Bank had recalled entire loan by Recall Notice dated 02.01.2023. The Corporate Debtor is liable to pay the entire amount.
Coming to the submission of the Appellant the Section 7 application which was filed by the Bank was barred by time. It was relevant to notice that the date of default was mentioned as 08.8.2018 and OTS proposals were given by the Corporate Debtor on 11.03.2020 and 05.05.2020.
It was found that the application under Section 7 was filed by the Bank on 13.03.2023 i.e. well within three years from submission of OTS proposal. OTS proposal submitted by the Corporate Debtor was clearly acknowledgement of debt and the benefit of Section 18 of the Limitation Act shall be available to the Financial Creditor.
Justice Ashok Bhushan, Chairperson and Barun Mitra, Member (Technical) held that no grounds have been made out in the appeal to interfere with the impugned order admitting Section 7 application. The Appeal was dismissed. Mr. Abhijeet Sinha, Sr. Advocate with Mr. Anuj Tiwari, Mr. Aditya Shukla, Ms. Heena Kochar, Ms. Monika, Advocates appeared for the appellant. Mr. Arun Kathpalia, Sr. Advocate with Ms. Pallavi Kumar, Ms. Fatema Kachwalla appeared for the respondent.
To Read the full text of the Order CLICK HERE
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