2023 (8) TMI 1376 - AT - Insolvency and Bankruptcy

Rejection of Section 7 application - NPA was declared on 19th July 2016 but the Corporate Debtor s OTS was sanctioned on 14.02.2020 under which OTS default was committed during Section 10A of IBC Period - applicability of section 10A on default under the OTS - HELD THAT - The focus of the law which was brought by Section 10A was that when the Corporate Debtor suffers default on account of Covid-19 they should be protected from the filing of any Insolvency Application in the default committed during the said period - Section 10A never intended to cover the default which is continuing before Section 10A period. The present is a case where admittedly default has been committed by the Corporate Debtor since 2016. Admittedly NPA was declared on 19th July 2016. Learned Counsel for the Respondent has rightly referred to acknowledgement made by the Corporate Debtor in its balance sheets for the financial year 2018-19 2019-20 and 2020-21 where the dues were clearly acknowledged. Thus the present is the case where default was committed prior to commencement of Section 10A period. The submission that since default was also committed by the Corporate Debtor during the Section 10A period of the OTS amount which ultimately withdrawn on 25th January 2021 the Application should be barred by Section 10A does not commend here. There being categorical default by the Corporate Debtor prior to Section 10A period the Appellant was not clearly entitled for the benefit of Section 10A Period. There are no merit in the contention of Learned Sr. Counsel for the Appellant that Application under Section 7 of I B Code 2016 was barred by Section 10A. The Adjudicating Authority did not commit any error in admitting Section 7 Application - appeal dismissed.

Summary

Issues Involved:
1. Validity of the Section 7 Application filed by the Financial Creditor.
2. Applicability of Section 10A of the Insolvency and Bankruptcy Code, 2016.
3. Acknowledgement of debt by the Corporate Debtor.

Summary:

1. Validity of the Section 7 Application:
The appeal was filed by a suspended director of the Corporate Debtor challenging the order dated 20th June 2023 by the National Company Law Tribunal, which admitted the Section 7 Application filed by the Financial Creditor, Axis Bank Limited. The Corporate Debtor had defaulted on financial assistance received between 2004 and 2016, with the account classified as NPA on 19th July 2016. The Adjudicating Authority found that the Corporate Debtor had acknowledged the debt in its financial years 2018-19, 2019-20, and 2020-21, and thus admitted the Section 7 Application.

2. Applicability of Section 10A of the Insolvency and Bankruptcy Code, 2016:
The appellant argued that the default under the One-Time Settlement (OTS) sanctioned on 14th February 2020 occurred during the Section 10A period, thereby attracting Section 10A. However, the Adjudicating Authority held that the default date as per the Information Utility was 26.09.2019, which is prior to 25th March 2020, making Section 10A inapplicable. The Supreme Court's judgment in "Ramesh Kymal Vs. M/s. Siemens Gamesa Renewable Power Pvt. Ltd." was cited, which clarified that Section 10A does not apply to defaults committed before 25th March 2020.

3. Acknowledgement of Debt by the Corporate Debtor:
The Corporate Debtor had acknowledged the debt in its balance sheets for the financial years 2018-19, 2019-20, and 2020-21. The appellant's argument that the OTS default during the Section 10A period should bar the Section 7 Application was rejected. The Tribunal noted that the default occurred much before the Section 10A period, with the NPA declared on 19th July 2016. The OTS approved on 14th February 2020 was also not complied with by the Corporate Debtor, and the OTS was withdrawn on 25th January 2021.

Conclusion:
The Tribunal concluded that the Section 7 Application was not barred by Section 10A, as the default occurred prior to the Section 10A period. The appeal was dismissed, upholding the Adjudicating Authority's order to admit the Section 7 Application.