2024 (5) TMI 678 - AT - Insolvency and Bankruptcy

Initiation of CIRP - application barred by Section 10A of IBC - date of alleged default is mentioned as 08.08.2018 from which date three years period came to end on 08.08.2021 and thereafter petition was not filed within the time - HELD THAT - The present is a case where admittedly default was committed by the Corporate Debtor much prior to 10A period i.e. 08.08.2018 as was claimed by the State Bank of India in its application. When default was committed by the Corporate Debtor prior to 10A period, it is not open for the Appellant to claim that application deserve to be rejected on the ground of Section 10A. There are two reasons for not accepting the submissions of the Appellant that the application under Section 7 was bared by Section 10A. Firstly, the default was committed by the Corporate Debtor prior to 10A period w.e.f. 08.08.2018, which was date of default mentioned in Section 7 application. When Section 7 application mentions date of default which default was committed prior to 10A period, application under Section 7 cannot be held to be barred by Section 10A. Further, although OTS was communicated by the Bank by letter dated 05.09.2020 but the OTS itself contemplates that parties shall jointly file an application before the DRT where original application filed by the Bank was pending and obtain the Consent Decree - The undertaking admittedly was issued on 11.05.2021. When the Joint Application was filed subsequent to 10A period and Consent Decree was obtained only on 26.04.2022, the submission of the Appellant that application under Section 7 was barred by 10A cannot be accepted. It is relevant to notice that the date of default was mentioned as 08.8.2018 and OTS proposals were given by the Corporate Debtor on 11.03.2020 and 05.05.2020. The application under Section 7 was filed by the Bank on 13.03.2023 i.e. well within three years from submission of OTS proposal. OTS proposal submitted by the Corporate Debtor was clearly acknowledgement of debt and the benefit of Section 18 of the Limitation Act shall be available to the Financial Creditor. Further, admittedly Consent Decree was passed by Debts Recovery Tribunal on 26.04.2022 and from the date of decree of the DRT, there shall be further period of three years for filing application. There are no grounds have been made out in this appeal to interfere with the impugned order admitting Section 7 application. There is no merit in the Appeal - Appeal is dismissed.

Summary

Issues Involved:
1. Bar of Section 10A on Section 7 Application.
2. Execution of Consent Decree through Section 7 Application.
3. Limitation period for filing Section 7 Application.

Issue 1: Bar of Section 10A on Section 7 Application
The main thrust of the Appellant's argument is that the Section 7 application filed by the State Bank of India is barred by Section 10A of the IBC. The Appellant contends that the default occurred within the 10A period, specifically after the failure to pay Rs.165.96 Crore by 04.03.2021, which falls within the 10A period. However, the Tribunal notes that the date of default mentioned in the Section 7 application is 08.08.2018, which is prior to the 10A period. The Tribunal also refers to the judgment in "Raghavendra Joshi vs. Axis Bank Limited and Another, 2023 SCC OnLine NCLAT 498," which clarifies that Section 10A does not cover defaults committed before the 10A period. Therefore, the Tribunal concludes that the application is not barred by Section 10A.

Issue 2: Execution of Consent Decree through Section 7 Application
The Appellant argues that the Section 7 application is an attempt to execute the Consent Decree passed by the DRT on 26.04.2022, which is not permissible. The Tribunal notes that the OTS terms themselves contemplate that in case of non-payment, the Bank can cancel the OTS and recover the entire outstanding amount. The Tribunal further observes that the Consent Decree was obtained after the 10A period and that the application under Section 7 cannot be considered as an execution of the Consent Decree but rather a fresh cause of action due to the default.

Issue 3: Limitation period for filing Section 7 Application
The Appellant contends that the Section 7 application is barred by time as the date of default is 08.08.2018, and the application was filed on 13.03.2023, beyond the three-year limitation period. The Tribunal notes that the Corporate Debtor acknowledged the debt in its financial accounts ending 31.03.2019 and 31.03.2020, extending the limitation period under Section 18 of the Limitation Act. Additionally, the Tribunal refers to the Consent Decree passed on 26.04.2022, which provides a further three-year period for filing the application, as held by the Supreme Court in "Kotak Mahindra Bank vs. A. Balakrishnan; (2022) 9 SCC 186." Therefore, the Tribunal concludes that the application is within the limitation period.

Conclusion:
The Tribunal finds no merit in the appeal and dismisses it, upholding the order admitting the Section 7 application. The application is not barred by Section 10A, is not an execution of the Consent Decree, and is within the limitation period.