No CIRP for COVID-Period Default: NCLAT Affirms NCLT Order Rejecting Application u/s 10A [Read Order]
The NCLAT relied on a Supreme Court ruling, underlining that date of default disclosed in the demand notice shall be considered for examining bar under Section 10A
The National Company Law Appellate Tribunal (NCLAT) Principal Bench at New Delhi has upheld the dismissal of a Section 7 application under the Insolvency and Bankruptcy Code, 2016, holding that no Corporate Insolvency Resolution Process (CIRP) can be initiated where the date of default falls within the period suspended by Section 10A during the COVID-19 pandemic.
The Tribunal reiterated that once a creditor specifies a particular default date in the demand notice and the petition, the proceedings must proceed on that basis, and a CIRP application is not maintainable for such barred defaults.
The bench, comprising Justice Yogesh Khanna (Judicial Member) and Ajai Das Mehrotra (Technical Member), was hearing an appeal filed by Raja Som Sehrawat, who had claimed that a sum of Rs. 3.3 crore disbursed in July 2020 constituted a financial debt repayable within three months.
He contended that although the initial repayment period ended in October 2020, the time was extended verbally on the alleged request of the corporate debtor, and the date of default should be treated as September 22, 2021, as mentioned in the Section 7 petition and legalnotice.
The Tribunal noted that the creditor himself had stated in the statutory notice that the debt fell due on October 22, 2020, three months from the date of disbursement. No documentary evidence was produced to show any communication, correspondence, or agreement extending the repayment period.
The NCLAT relied on the Supreme Court ruling in Ramesh Kymal v. Siemens Gamesa Renewable Power, which mandates that the date of default disclosed in the demand notice is determinative for examining the bar under Section 10A.
It was observed that the identified default date of October 22, 2020, squarely fell between March 25, 2020, and March 24, 2021, the period during which initiation of CIRP had been statutorily suspended.
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The Appellate Tribunal emphasised that Section 10A prohibits not just filing during the exclusion window, but permanently bars any application for defaults arising in that period. As long as the default arose during the suspended timeline, the creditor cannot attempt to rely on subsequent conduct or alleged extensions to escape the statutory bar.
Holding that the NCLT had correctly rejected the Section 7 petition, the NCLAT dismissed the appeal and reiterated that Section 10A must be purposively construed to protect businesses from insolvency proceedings for pandemic-period defaults.
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