Recall Notice issued during Cut-Off Period  Specified u/s 10A doesn’t Defer Date of Default If Default Occurred before Cut-Off Period: NCLAT [Read Order]

The National Company Law Appellate Tribunal (NCLAT), New Delhi has held that recall notice issued during cut-off period  specified under section 10A of the Insolvency Bankruptcy Code (IBC), 2016 doesn’t defer date of default if default occurred before cut-off period.

The Tribunal held that the application under section 7 of the Insolvency & Bankruptcy Code (IBC) was not hit by section 10A.

Svakarma Finance Pvt. Ltd., the Financial Creditor sanctioned a working capital loan to Yours Ethnic Foods Pvt. Ltd, the Corporate Debtor. A loan agreement was executed on 25.07.2019. The loan was repayable monthly from 20.08.2019. Despite several opportunities and a recall notice dated 6.11.2020, the Corporate Debtor failed to pay the dues. The Financial Creditor filed an application under section 7 of IBC to initiate the Corporate Insolvency Resolution Process for the default. The NCLT admitted the section 7 application on 09.10.2023.

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Sandip Narendrakumar Patel, the Appellant, who is the Promotor/Director of Corporate Debtor, challenged the impugned order. The issue before the Tribunal was whether the recall notice dated 06.11.2020 by which 15 days were given to the Corporate Debtor to pay off the defaulted amount was to be considered to be the date of default as 21.11.2020 to hold that the application filed under section 7 was hit by section 10A of IBC.

The bench of Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member) and Mr. Indevar Pandey (Technical Member) observed that the Corporate Debtor cannot be permitted to take advantage of the fact that the Financial Creditor had issued a notice of recall which falls within the cut off period of Section 10A because the issuance of recall notice was on the occurrence of any of the events of default, which had already occurred in January.

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While dismissing the appeal, the tribunal noted that Section 10 A postulates that the CIRP cannot be initiated either under Section 7, 9 or 10 if the default occurs during the cut off period i.e. 25.03.2020 to 25.03.2021. The Tribunal held that Section 10A would not be applicable because the date of default occurred much before 25.03.2020.

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