Partial Payments do not Absolve CD From Default Status: NCLAT [Read Order]
Partial Payments do not Absolve CD From Default Status, rules NCLAT
NCLAT – NCLAT Delhi – Partial Payments – Tax news – Corporate Debtor – Taxscan
NCLAT – NCLAT Delhi – Partial Payments – Tax news – Corporate Debtor – Taxscan
A three-member bench of the New Delhi Bench of the National Company Law Appellate Tribunal ( NCLAT ) held that the partial payments do not absolve the corporate debtor ( CD ) from the default status.
The Respondent, a Financial Creditor, filed an Application with the NCLT seeking insolvency proceedings against the Appellant, a Corporate Debtor, alleging a default exceeding Rs. 46.80 crores. The Respondent argued that the default date was September 27, 2019, when the loan became classified as a Non-Performing Asset ( NPA ) and issued the recall notice on 11.08.2020.
The Respondent No. 2 is the Interim Resolution Professional of the Corporate Debtor appointed by the Adjudicating Authority vide the Impugned Order and confirmed as the Resolution Professional vide the order dated 27.10.2023.
The counsel for the appellant submitted that it is evident that in case any event of default had occurred, a suitable cure period notice had to be given and if the default is not cured within the period stipulated in the cure period notice, then and only then, the Financial Creditor may elect the Remedies for event of default including but not limited to the acceleration of the maturity of the Facility.
In the instant case, the Financial Creditor, in utter breach of the terms of the Sanction Letter, had failed to issue an intimation of Event of Default and had failed to provide any period of cure to the Corporate Debtor.
The counsel for the respondent submitted that once the loan is taken by the CD, it was fully aware that it has to service the interest as per the loan documents, thus, the said obligation of the CD need not be reminded or intimated to the CD. The CD was a party to the loan documents. It has to be aware of its obligations under the said documents.
The Tribunal comprising Justice Ashok Bhushan, Chairperson, Barun Mitra, Member ( Technical ) and Arun Baroka, Member (Technical) observed that “The remedies stipulated for events of default in the Sanction Letter primarily focus on the acceleration of maturity and the enforcement of security interest, such as filing a Recovery suit before the Debt Recovery Tribunal ( DRT ) and enforcing security interest under the SARFAESI Act, 2002. Notably, there is no mention of resolution under the IBC. Hence, relying on events of default and their corresponding remedies outlined in the Sanction Letter does not bolster the CD's case and we cannot rely on this line of argument.”
“Once the CD defaulted and the loan accounts were classified as NPAs, a legal recourse was well within the Bank's statutory rights. Pursuing resolution under the IBC 2016, which serves as a specialized law governing the resolution of distressed entities, was a legitimate course of action for the Bank” the Tribunal concluded.
To Read the full text of the Order CLICK HERE
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