2024 (5) TMI 627 - AT - Insolvency and Bankruptcy

Initiation of CIRP - NCLAT admitted the application u/s 7 - existence of debt and default - date of default was 14.02.2020, when the account was declared NPA - application barred by Section 10A of IBC or not - HELD THAT - The Application under Section 7 clearly mentions that date of default was 14.02.2020, when the account was declared NPA. The Financial Creditor was fully entitled to file Section 7 Application, treating the date of default as 14.02.2020 - It is further relevant to notice that date of NPA mentioned was not for the first time mentioned in Section 7 Application. The Financial Creditor has initiated proceedings under the SARFAESI Act against the Corporate Debtor before the Debts Recovery Tribunal, referring to Notice under Section 13, sub-section (2) of SARFAESI Act and the date of NPA was mentioned as 14.02.2020. The sheet-anchor submission of learned Counsel for the Appellant is on renewal letter dated 26.07.2019 issued by the Syndicate Bank (now Canara Bank). Renewal of sanction for one year is the renewal of working capital limit, as noted in the letter. Renewal of working capital limit is not relatable to the default committed by the Corporate Debtor in fulfilling the obligations under the Sanctioned Facilities. When on 14.02.2020, accounts of the Corporate Debtor were declared as NPA, it clearly means that default was committed by the Corporate Debtor in carrying out his financial obligations. Renewal of sanction has nothing to do with the date of default committed by the Corporate Debtor in fulfilling its financial obligations. Thus, the very basis of the submission of learned Counsel for the Appellant that since renewal of working capital limit was renewed for one year upto 25.07.2020, hence, the date of default is 25.07.2020, has no basis and is to be rejected. The application under Section 7 filed by Canara Bank was not barred by Section 10A as contended by the Appellant. The Adjudicating Authority having found the debt and default, has rightly proceeded to admit Section 7 Application. In paragraph 16 of the order, the Adjudicating Authority has noted all relevant factors to be considered in Section 7 Application and has proceeded to answer the said issues in favour of the Financial Creditor. The are no error in the impugned order passed by the Adjudicating Authority admitting Section 7 Application. There is no merit in the Appeal - appeal dismissed.

Summary

Issues Involved:
1. Whether the Section 7 Application filed by Canara Bank was barred by Section 10A of the IBC.
2. Determination of the date of default and its implications.
3. Relevance of writ petitions filed by the Corporate Debtor and other parties.

Issue 1: Barred by Section 10A

The Appellant argued that the Financial Facilities granted to the Corporate Debtor were renewed by a letter dated 26.07.2019 for one year, i.e., up to 25.07.2020. Hence, the default, if any, would have been only on 25.07.2020, which date was during the 10A period, making the Application liable to be rejected as barred by Section 10A. The Financial Creditor refuted this, stating that the date of NPA being 14.02.2020, there is no question of the Application being barred by Section 10A.

Issue 2: Date of Default

The Application under Section 7 clearly mentions that the date of default was 14.02.2020, when the account was declared NPA. The Financial Creditor was fully entitled to file the Section 7 Application, treating the date of default as 14.02.2020. The Supreme Court in Laxmi Pat Surana vs. Union Bank of India and Anr. held that upon declaration of the loan account as NPA, that date can be reckoned as the date of default to enable the financial creditor to initiate action under Section 7 IBC.

Renewal of working capital limit for one year up to 25.07.2020 does not alter the date of default. The renewal of sanction has nothing to do with the default committed by the Corporate Debtor in fulfilling its financial obligations. Thus, the submission that the date of default is 25.07.2020 based on the renewal letter has no basis and is rejected.

Issue 3: Relevance of Writ Petitions

The Appellant referred to writ petitions filed in the Calcutta High Court and the Supreme Court. The Calcutta High Court directed the SBI to decide the issue regarding the entitlement of the appellants to 270 days' credit, which has no relevance to the issues in the present Appeal. The writ petitions filed in the Supreme Court were dismissed as withdrawn. The proceedings in these writ petitions have no bearing on the issues raised in this Appeal.

Conclusion:

The Application under Section 7 filed by Canara Bank was not barred by Section 10A. The Adjudicating Authority rightly found the debt and default and admitted the Section 7 Application. The Appeal is dismissed with no order as to costs.