2022 (7) TMI 48 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - time limitation - HELD THAT - The Financial Creditor has indicated the last date of payment as 21st August 2020. Further, the table showing the computation of the amount claimed to be in default and days of default annexed to the Petition as Exhibit D clearly displays the date of default as 31st December 2020. It is pertinent to note that vide IBC (Second Amendment) Act 17 of 2020, the Insolvency and Bankruptcy Code, 2016 was amended and Section 10A was inserted to the Code where provisions regarding Suspension of initiation of corporate insolvency resolution process are detailed - This suspension was further extended by subsequent Notifications issued by the Ministry of Corporate Affairs until 25th March 2021. Since the date of Default falls within the said time period of suspension, this Petition is barred by Section 10A of the Code. Even though an Event of Default as stipulated under the terms of the Agreement dated 10th October 2018 has occurred, the filing of this Petition is expressly barred by Section 10A of the Code. Petition dismissed.

Summary

Issues:
Initiation of Corporate Insolvency Resolution Process based on default in payment by Corporate Debtor. Application of Section 7 of the Insolvency and Bankruptcy Code, 2016. Interpretation of the suspension provision under Section 10A of the Code.

Analysis:
1. The Financial Creditor filed a Company Petition seeking to initiate Corporate Insolvency Resolution Process against the Corporate Debtor for defaulting on a payment of Rs. 1,52,93,750.44 as of 24th August 2021. The Petition invoked Section 7 of the Insolvency and Bankruptcy Code, 2016, along with Rule 4 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

2. The Financial Creditor had entered into a Loan Agreement with the Borrower, a Group Company of the Corporate Debtor, for an unsecured loan facility. The Borrower defaulted on repayment from 21st August 2020 and failed to convert the loan amount into equity by 31st December 2020, leading to an "Event of Default." Despite acknowledging the liability, the Corporate Debtor expressed inability to repay the outstanding amount.

3. The Financial Creditor sent reminders and a Loan Recall Notice demanding payment, but the Corporate Debtor failed to comply. The Corporate Debtor, in its reply to the Petition, attributed the defaults to the deceased Director's actions and admitted its inability to fulfill the repayment obligations under the Loan Agreement.

4. The Tribunal noted the suspension provision under Section 10A of the Code, which bars the initiation of insolvency resolution processes for defaults arising on or after 25th March 2020 for a specified period. As the default in this case fell within the suspended period, the Petition was dismissed based on the explicit prohibition under Section 10A, despite the occurrence of an "Event of Default" as per the agreement terms.

5. The Tribunal emphasized that the suspension under Section 10A, extended until 25th March 2021, precluded the admission of the Petition, even though the Corporate Debtor had acknowledged its liability. Consequently, the Petition was deemed inadmissible and dismissed, with directions to communicate the order to both parties promptly.