COVID-19 Window u/s 10A IBC Not Applicable If Default Predates 25 March 2020: Supreme Court Holds Failed Restructuring Can’t Shift Default Date [Read Judgement]
The Supreme Court held that Section 10A COVID protection cannot be used when default occurred before 25 March 2020 and a failed restructuring cannot shift the default date.
The Supreme Court of India held that the COVID-19 protection under Section 10A of the Insolvency And Bankruptcy Code, 2016 (IBC) does not apply if the default happened before 25 March 2020, and that a failed restructuring cannot change the original default date.
The case came from the order of the NCLT, Kolkata dated 2 January 2024, which admitted a Section 7 application filed by REC Ltd. and started CIRP against Hiranmaye Energy Ltd. The NCLAT upheld this order on 25 January 2024. Power Trust, the promoter, challenged these orders before the Supreme Court.
REC stated that the corporate debtor committed default on 31 March 2018 under the loan agreement dated 19 June 2013. The outstanding amount was more than Rs. 21,83,19,16,896 as on 5 June 2021.
Before the Supreme Court, Power Trust argued that Section 10A should apply because the restructuring proposal dated 21 February 2020 changed the repayment schedule. They argued that interest was to start from 30 June 2020 and instalment was due from 31 December 2020, so the default falls in COVID period.
The respondents’ counsel argued that the restructuring never became effective because the company did not fulfil pre-implementation conditions like tariff order, DSRA, priority debt and working capital. So, the original default date of 31 March 2018 still remains.
Justice Joymalya Bagchi, speaking for the Bench with CJI Surya Kant and Justice VipulM. Pancholi, observed that Section 10A only protects defaults which happened on or after 25 March 2020. The court pointed out that the Explanation clearly says it will not apply to defaults before that date.
The court held that since the default was in 2018 and restructuring did not take effect, the date of default cannot be shifted. Even as per second restructuring, first instalment was due on 31 March 2021, which is after the Section 10A window ended. So, Section 7 application was valid and not barred.
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