2021 (4) TMI 521 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditor - existence of debt and dispute or not - date of default in case of issuance of fresh cheques as replacement cheques - HELD THAT - Since the replacement cheques were issued by the Corporate Debtor and were accepted by the Petitioner, the contention of the latter that default had taken place on 31/07/2019 does not hold water. In the clause 4 of the Consent Terms it was clearly stated as The Corporate Debtor hereby agrees and undertakes that the said amount shall be paid by the Corporate Debtor to the Financial Creditor vide postdated cheques (PDC) on the due dates mentioned hereunder . When the Corporate Debtor issued fresh cheques and they were accepted, the due date also got extended. Besides by its conduct the Petitioner accepted the extension of the due dates. The contention of the Petitioner that the fresh cheques would not extend the date of default would not be helpful. Since it has been categorically covenanted that the payment had to be made on or before 31/03/2020, on failure to do so it would then be held to be in default. The date of default thus has to be construed only as 31/03/2020 and not otherwise. The contention of the Petitioner that the default has occurred on 31/07/2019 cannot be accepted. In view of Section 10A of the Code, no Petition can be filed for the default occurring on or after 25/03/2020. The default in the instant case having occurred after 25/03/2020, this Petition presently would not be maintainable - petition dismissed.

Summary

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Determination of the date of default.
3. Applicability of Section 10A of the Insolvency and Bankruptcy Code, 2016.
4. Validity of post-dated cheques (PDCs) and consent terms.
5. Impact of COVID-19 pandemic and related amendments on insolvency proceedings.

Issue-wise Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The petitioner sought initiation of CIRP against the respondent alleging default in payment of a financial debt amounting to ?7,23,98,459/-. The petition was filed under Section 7 of the Insolvency and Bankruptcy Code, 2016.

2. Determination of the date of default:
The petitioner argued that the default occurred on 31/07/2019 when the first installment as per the consent terms was due. The respondent, however, contended that the default date should be considered as 31/03/2020, as per Clause 10 of the consent terms, which stipulated that the payment had to be made by 31/03/2020.

3. Applicability of Section 10A of the Insolvency and Bankruptcy Code, 2016:
Section 10A of the Code, inserted by amendment on 05/06/2020, prohibits filing applications for initiation of CIRP for defaults occurring on or after 25/03/2020 for a period of six months, extendable up to one year. The respondent argued that since the default date was 31/03/2020, the petition was not maintainable under Section 10A.

4. Validity of post-dated cheques (PDCs) and consent terms:
The consent terms included a schedule of payments through PDCs. The petitioner did not deposit these cheques on the due dates upon the respondent's request and accepted replacement cheques. The tribunal noted that by accepting replacement cheques, the petitioner effectively extended the due dates, making 31/03/2020 the final date for payment, as per Clause 10 of the consent terms.

5. Impact of COVID-19 pandemic and related amendments on insolvency proceedings:
The respondent highlighted the impact of the COVID-19 pandemic and the subsequent amendment to the Code, which provided relief to corporate entities from being pushed into insolvency during the pandemic. The tribunal acknowledged the amendment and the notifications issued by the Ministry of Corporate Affairs, which extended the relief period.

Judgment Analysis:
- The tribunal observed that the petitioner accepted replacement cheques, thereby extending the due dates for payment.
- Clause 10 of the consent terms clearly stated that the payment had to be made by 31/03/2020, and failure to do so would constitute a default.
- The tribunal concluded that the date of default was 31/03/2020, not 31/07/2019, as argued by the petitioner.
- Given the default date of 31/03/2020, the petition was not maintainable under Section 10A of the Code, which prohibits filing for defaults occurring between 25/03/2020 and 24/03/2021.

Final Order:
The company petition was dismissed on contest. However, the dismissal does not impede the petitioner from initiating any proceeding, including one under the Code, against the corporate debtor in accordance with the law. No costs were imposed.