Suspension of CIRP u/s 10A of IBC applies to Due Defaulted on 31/3/2020: NCLAT allows Appeal [Read Order]

The Chennai bench of the National Company Law Appellate Tribunal( NCLAT ) held that the Suspension of Corporate Insolvency Resolution Process (CIRP) under section 10A of The Insolvency And Bankruptcy Code, 2016 (IBC) applies to due default on 31/3/2020.

Carissa Investments, the appellant Challenged the impugned order passed by the Adjudicating Authority which was filed by M/s. Prudent ARC Limited under Section 7 of the Insolvency and Bankruptcy Code, 2016 [‘Code’]. The Adjudicating Authority had admitted Section 7 Application formulating

The Appellant, shareholder and the Corporate Debtor had executed a share subscription, share purchase and shareholders agreement with M/s. Indu Projects Ltd. on 02.10.2007. A Rupee Loan Agreement was executed between IDFC and the Corporate Debtor on 08.09.2008 for the disbursement of a loan of Rs.60 Crores and a sum of Rs.45 Crores was disbursed by IDFC on 11.09.2008.

 A Common Loan Agreement was executed between the Corporate Debtor, IDFC, IFCI, Andhra Bank and other Banks on 27.02.2009. A ‘Lender Creditor Agreement’ was also executed between the Corporate Debtor and IDFC, IFCI, Andhra Bank and others. On 13.10.2013, the loan account of the Corporate Debtor was declared as NPA which then transferred its right under the Loan Documents to EARC vide an Assignment Agreement dated 24.12.2013. 

The Appellant submitted that since the date of default, being the same as the date of declaration of the loan account of the Corporate Debtor as NPA, was 13.10.2013, the alleged limitation to initiate any fresh proceeding to enforce the lenders’ rights under the ‘Loan Documents’ had expired on 13.10.2016 itself.  It is submitted that one of the Lenders of the Consortium, IFCI, filed Petition under Section 7 of the Code.

A Settlement Agreement was executed between the Corporate Debtor and EARC, in which the Corporate Debtor undertook to pay Rs.15,00,12,830/- to EARC as a full and final settlement towards the alleged debt owed to EARC in three tranches ending on 31.03.2020. Subsequently, the Section 7 Petition filed by IFCI Ltd. was admitted by the Adjudicating Authority on 08.11.2019.

The earlier CIRP Proceedings initiated against the same Corporate Debtor, which was held to be barred by limitation and also upheld by the Hon’ble Apex Court in Civil Appeal bearing  No. 3509 of 2020 vide order dated 25.01.2021, was not brought to the notice of the Adjudicating Authority. Factually, one of the leaders of the consortium, IFCI Limited filed Petition under Section 7 of the Code,

The National Company Law Appellate Tribunal, Principal Bench, had set aside the order holding that the debt was time-barred, against which order a Civil Appeal was filed and the same was dismissed by the Apex Court. As per the Settlement Agreement entered into between the Corporate Debtor and the Lenders, the third instalment of the payment was ‘due and payable’ on 31.03.2020.

The date of default is crystalized as 30 April 2020 in the demand notice issued by the appellant in Form 3, which is prescribed under Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The statutory form provides for a disclosure of the particulars of the operational debt.

It was viewed that the proviso to Section 10A stipulates that "no application shall ever be filed" for the initiation of the CIRP of a corporate debtor "for the said default occurring during the said period". The explanation which has been inserted for the removal of doubts clarifies that Section 10A shall not apply to any default which has been committed under Sections 7, 9 and 10 of the act before 25 March 2020.

A two-member bench comprising Justice M. Venugopal, Member (Judicial) and Shreesha Merla, Member (Technical)  observed that the ‘Explanation’ removes any doubt by clarifying that the provisions of the Section shall not apply in respect of any default committed before 25.03.2020.

In light of Apex Court’s observation in ‘Ramesh Kymal versus M/s. Siemens Gamesa Renewable Power Pvt. Ltd.’ allowed the appeal and set aside the Impugned Order.

To Read the full text of the Order CLICK HERE

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