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2024 (11) TMI 550 - AT - IBCAdmission of Section 7 Application filed by the Financial Creditor - application barred by Section 10A of the Insolvency and Bankruptcy Code (IBC) or not - fresh cause of action for filing the Section 7 Application - HELD THAT - It is already noticed that default was committed by the Corporate Debtor on 21.12.2017 29.06.2018, when accounts of the Corporate Debtor was declared by Lenders as NPA. Assignment was made in favour of the Financial Creditor in the Year 2019. Financial Creditor agreed to settle and restructure the dues of the Corporate Debtor on 26.04.2019, which was also not honoured and, hence the default was also committed prior to 10A period. In any view of the matter, Section 7 Application having been founded on the basis of default committed after Consent Decree dated 29.08.2022 was passed, Default cannot be pegged on 10A period when Application under Section 7 is founded on the basis of Consent Decree dated 29.08.2022. The observation made by this Tribunal in Samrat Restaurant Vs. Brewcrafts Micro Brewing Pvt. Ltd. 2024 (10) TMI 399 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI - LB was in facts of the said case and has no bearing in the fact of the present case where a Consent Decree was passed by the DRT. It is not the case of the Appellant that no default was committed by the Corporate Debtor in terms of the Consent Decree dated 29.08.2022. Thus, the Adjudicating Authority did not commit any error in admitting Section 7 Application filed by the Financial Creditor. The Section 7 Application was in no manner hit by Section 10A of the IBC. There is no merit in the Appeal - The Appeal is dismissed.
Issues Involved:
1. Whether the Section 7 Application filed by the Financial Creditor is barred by Section 10A of the Insolvency and Bankruptcy Code (IBC). 2. Whether the default committed by the Corporate Debtor falls under the 10A period. 3. Whether the Consent Decree dated 29.08.2022 constitutes a fresh cause of action for filing the Section 7 Application. 4. Applicability of precedents and legal principles regarding Section 10A and default acknowledgment. Detailed Analysis: 1. Bar under Section 10A of the IBC: The primary contention by the Appellant was that the Section 7 Application filed by the Financial Creditor is barred by Section 10A of the IBC, which prohibits the initiation of insolvency proceedings for defaults occurring during a specified period. The Appellant argued that the default occurred during the 10A period, specifically when the loan facilities were recalled on 15.09.2020. However, the Respondent countered that the default occurred prior to the 10A period, with accounts being declared Non-Performing Assets (NPA) in 2017 and 2018, and a restructuring facility not honored in 2019. The Tribunal found that the Section 7 Application was based on a default post-Consent Decree dated 29.08.2022, which was beyond the 10A period, thus not barred by Section 10A. 2. Default within the 10A Period: The Appellant contended that the default was during the 10A period, which cannot be cured by the Consent Decree dated 29.08.2022. However, the Tribunal noted that defaults were committed prior to the 10A period, with the Corporate Debtor's accounts being declared NPA in 2017 and 2018. Additionally, the Financial Creditor had agreed to restructure dues on 26.04.2019, which was not honored. The Tribunal concluded that the default was not confined to the 10A period, and the Section 7 Application was based on a subsequent default post-Consent Decree. 3. Consent Decree as Fresh Cause of Action: The Tribunal examined whether the Consent Decree dated 29.08.2022 constituted a fresh cause of action for the Section 7 Application. The Consent Terms acknowledged the debt and provided a repayment schedule. Paragraphs 9 and 10 of the Consent Terms explicitly allowed the Financial Creditor to file a fresh Section 7 Application in case of default under the Consent Terms. The Tribunal held that the issuance of the Recovery Certificate and the Consent Decree provided a fresh cause of action, with the default date being 29.08.2022, thus not barred by Section 10A. 4. Precedents and Legal Principles: The Appellant relied on various judgments to argue that the application was barred by Section 10A. However, the Tribunal distinguished these cases based on their facts. The Tribunal referred to the Supreme Court's judgment in Dena Bank Vs. C. Shivakumar Reddy, which allowed Section 7 proceedings based on a Recovery Certificate. The Tribunal also noted that a final judgment or decree provides a fresh right to recover the amount, thus supporting the Financial Creditor's position. The Tribunal found that the precedents cited by the Appellant did not apply to the present case, as the Section 7 Application was based on a post-Consent Decree default. Conclusion: The Tribunal concluded that the Section 7 Application was not barred by Section 10A, as it was based on a default post-Consent Decree dated 29.08.2022. The Tribunal dismissed the Appeal, upholding the Adjudicating Authority's decision to admit the Section 7 Application for initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor.
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