2021 (10) TMI 491 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate debtor failed to make repayment of its dues occurred during the period when there was specific bar enforced by the statute under Section 10A - Financial Creditors - mortgage of office premises as collateral security - existence of debt and dispute or not - HELD THAT - This Bench is of the considered opinion that the notification dated 06.06.2020 categorically declared that no application for initiation of Corporate Insolvency Resolution Process of Corporate Debtor shall be filed for any default arising on or after 25.03.2020. The notification also provided an explanation for removal of doubt that this Section shall not apply to any default committed before 25.03.2020. In the instant case, the Petitioner in Form-1 claimed that the date of default is as on 30.10.2020 and claimed an amount of ₹ 55,75,27,571/-. An attempt was made to set back the Date of default by filing an Additional Affidavit by the Petitioner. However, the same is untenable as the date of default in Form-1 is 31.10.2020. Whether the provision for Section 10A attracted to an application filed u/s 7 on 30.12.2020 claiming the default occurred on 31.10.2020? - HELD THAT - The initiation of CIRP against the Corporate Debtor where a default has occurred after 25.03.2020 cannot be initiated in view of the provision engrafted in Section 10A which clearly barred filing of such application by the Petitioner for initiation of CIRP for the default which has occurred on 31.10.2020. The object of legislature was to suspend the operation of Section 7, 9 and 10 in ambit of default arising on or after March, 2020, the date on which nationwide lock down was imposed which affected normal business operation and impacted global economy. The Petition is dismissed on the ground that there was specific plea in initiating CIRP against Corporate Debtor where the default has occurred during the period when there was specific bar enforced by the statute under Section 10A.

Summary

Issues Involved:
1. Default in repayment of loan by the Corporate Debtor.
2. Applicability of Section 10A of the Insolvency and Bankruptcy Code, 2016 due to COVID-19 pandemic.
3. Validity of the petition filed during the suspension period of Sections 7, 9, and 10 of the Insolvency and Bankruptcy Code, 2016.

Issue-wise Analysis:

1. Default in repayment of loan by the Corporate Debtor:
The Petitioner, Axis Bank Limited, sought the initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, Maharashtra Theatres Private Limited, under Section 7 of the Insolvency and Bankruptcy Code, 2016. The Corporate Debtor defaulted on a loan repayment amounting to ?55,75,27,571/- as of 31.10.2020. The details of the defaulted amount and the facilities availed by the Corporate Debtor were provided in Form-1. Despite several correspondences and agreed repayment schedules, the Corporate Debtor failed to fulfill its obligations. The account was declared a Non-Performing Asset (NPA) on 29.01.2019, and the Financial Creditor recalled the credit facilities and invoked guarantees against personal guarantors on 11.07.2019.

2. Applicability of Section 10A of the Insolvency and Bankruptcy Code, 2016 due to COVID-19 pandemic:
The Corporate Debtor argued that the petition was not maintainable due to the suspension of Sections 7, 9, and 10 of the Insolvency and Bankruptcy Code, 2016, as per the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020, and subsequent notifications. Section 10A was inserted to suspend the initiation of CIRP for defaults arising on or after 25th March 2020 due to the COVID-19 pandemic and its impact on business operations. This suspension was extended further by notifications dated 24.09.2020 and 22.12.2020, making the petition filed on 30.12.2020 invalid as the default occurred on 31.10.2020.

3. Validity of the petition filed during the suspension period of Sections 7, 9, and 10 of the Insolvency and Bankruptcy Code, 2016:
The Tribunal examined the petition and found that the date of default was declared as 31.10.2020 in Form-1. The petition was filed on 30.12.2020, during the suspension period of Sections 7, 9, and 10, as per Section 10A. The Tribunal referred to the Supreme Court judgment in Ramesh Kymal vs. Simens Gamesa Renewal Power Private Limited, which clarified the distinction between the initiation and commencement of CIRP and affirmed that no application for initiation of CIRP could be filed for defaults occurring on or after 25th March 2020. The Tribunal concluded that the petition was not maintainable as it was filed during the period when there was a specific bar enforced by Section 10A.

Conclusion:
The Tribunal dismissed the petition on the grounds that the initiation of CIRP against the Corporate Debtor for a default occurring on 31.10.2020 was barred by Section 10A of the Insolvency and Bankruptcy Code, 2016. The legislative intent was to suspend the operation of Sections 7, 9, and 10 for defaults arising during the COVID-19 pandemic, impacting normal business operations and the global economy.