INITIATION OF CRP BY OPERATIONAL CREDITOR’S AND SUSPENSION UNDER SECTION 10A OF IBC

[Dr. Sanjiv Agarwal]

Section 9 of IBC Code, 2016 provides for initiation of Corporate Insolvency Resolution Process (CIRP) by an operational creditor. Accordingly, after the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment, if the operational creditor does not receive payment from the corporate debtor or notice of the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.

An operational creditor initiating a corporate insolvency resolution process under section 9 of IBC Code, 2016 may propose a resolution professional to act as an interim resolution professional. The Adjudicating Authority shall, within fourteen days of the receipt of the application by an order, admit the application and communicate such decision to the operational creditor and the corporate debtor or reject the application and communicate such decision to the operational creditor and the corporate debtor. The corporate insolvency resolution process shall commence from the date of admission of the application.

However, w.e.f. 25.03.2020, section 10A was inserted to provide for suspension of initiation of corporate insolvency process which is a non-obstante clause overriding section 7, 9 and 10 of IBC, 2016. It provides that no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of six months or such further period, not exceeding one year from notified date. No application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during such period. Further, the provisions of section 10A shall not apply to any default committed before 25th March, 2020.

Recently, in AL SADIQ SWEETS VERSUS B. SREEKALA & ANR - 2022 (3) TMI 1569 - SC ORDER, Supreme Court dismissed the appeal of operational creditor and refused to interfere with NCLAT order which took note of the fact that under the ‘Contract’ the amount was due and payable on 25.04.2020, and came to a consequent conclusion that as per provision of Section 10A, the application filed by the ‘Operational Creditor’/petitioner under Section 9 of the Code was not maintainable.

In the instant case, the creditor had filed an application dated 16.09.2020 under section 9 of the IBC for the initiation of the CIRP against the corporate debtor. The Adjudicating Authority (NCLT) admitted the application holding that the corporate debtor was in default of debt due and payable. The respondent director of the corporate debtor challenged the NCLT’s order contending that when the date of default was after 25.03.2020, an application filed under section 9 on 16.09.2020 shall be barred by section 10A of the IBC.

The National Company Law Appellate Tribunal (NCLAT) by the impugned order set aside the NCLT’s order on the ground that the amount was due and payable on 25.04.2020, as per the provision of section 10A of the IBC.

The Apex Court thus held the validity of NCLAT order as well as section 10A of IBC Code, 2016.