Section 7 IBC Petition for Rs. 6.49 Cr Admitted: NCLT Rejects Section 10A Bar as Default Occurred Pre-COVID and Imposes Moratorium [Read Order]

The Mumbai bench of the National Company Law Tribunal (NCLT) admitted the Section 7 Insolvency and Bankruptcy Code,2016 (“I&B Code”) petition filed by the petitioner for Rs 6.49 crore, holding that the default occurred before the COVID-19 moratorium. The Tribunal rejected the limitation and Section 10A objections and appointed Mr Santanu T. Ray as Interim Resolution Professional, and imposed a moratorium under Section 14 of the Insolvencyand Bankruptcy Code, 2016.

In the instant case, Omkara Assets Reconstruction Private Limited, the financial creditor, filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Ego Flooring Pvt. Ltd., the corporate debtor, for a default amounting to Rs. 6.49 crore.

The default arose from non-repayment of dues under a cash credit facility that expired on 13th May 2019, making the amount due and payable from 14th May 2019. The financial creditor contended that the corporate debtor failed to regularise the account or clear the outstanding amount despite repeated reminders, and hence, default was established.

The petitioner submitted that the loan account had turned non-performing prior to the onset of the COVID-19 pandemic, and hence, the bar under Section 10A of the IBC, which temporarily suspended the initiation of CIRP for defaults occurring on or after 25th March 2020, was not applicable.

It was further argued that the present petition was within limitation, as the limitation period stood extended by the Supreme Court’s orders during the COVID-19 lockdown period. The petitioner also pointed out that a previous petition had been withdrawn with liberty to refile, and the re-filing of the instant petition was a procedural rectification, not an abuse of process.

The corporate debtor opposed the petition, contending that it was barred by limitation and hit by Section 10A of the IBC, as the alleged default was closely proximate to the pandemic period.

It was further argued that the earlier withdrawal of the petition without final adjudication indicated that the financial creditor lacked sufficient grounds to initiate CIRP. The corporate debtor also alleged that the creditor’s actions, including alleged coercive steps regarding fixed deposits, amounted to abuse of the insolvency process and that the petition was not maintainable.

The Tribunal observed that the default had occurred before 25th March 2020, and hence, Section 10A was inapplicable. The Tribunal held that the petition was filed within limitation, considering the exclusion of time granted by the Supreme Court for the COVID-19 period. It further found that the withdrawal of the earlier petition with liberty to refile did not bar the current proceedings.

Accordingly, the two-member bench comprising Prabhat Kumar (Judicial Member) Sushil Mahadeorao Kochey (Technical Member) admitted the Section 7 petition, appointed Mr. Santanu T. Ray as the Interim Resolution Professional (IRP), and imposed a moratorium under Section 14 of the IBC to prohibit recovery actions and protect the assets of the corporate debtor during CIRP.

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