2024 (7) TMI 318 - AT - Insolvency and Bankruptcy

Rejection of section 7 application - Section 7 application filed by Appellant rejected as barred by Section 10A of the IBC - HELD THAT - The Hon ble Supreme Court in C Shivkumar Reddy v. Dena Bank 2021 (8) TMI 315 - SUPREME COURT held that there is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents. There cannot be no quarrel to the above preposition of law laid down by the Hon ble Supreme Court in the above case. Present is a case where application which was filed by the appellant and date of default mentioned therein clearly fell in Section 10A period and no satisfactory explanation was given by the appellant to permit amendment in the date of default in the application. The present is not a case where any clarification or explanation is sought to be offered for date of default 05.09.2020 mentioned in Section 7 application. The date of default in itself is sought to be changed as 01.04.2021 without there being any reason or cause. Section 10A is a beneficial provision to extend certain protection to the corporate debtor during the COVID period. The said benefit cannot be allowed to be taken away indirectly, in event the appellant is permitted to amend the date of default which amendment is not supported by any justifiable cause or reason. Adjudicating Authority did not commit any error in rejecting the application of the appellant for change in date of default. After rejection of application of amendment, the Adjudicating Authority did not commit any error in rejecting Section 7 application as barred by Section 10A - Section 10A clearly mandated that no application can ever be filed with regard to default which has committed during 10A period. Counsel for the Appellant further sought to contend that default is a continuous default and hence, application under Section 7 could not have been said to be barred by Section 10A. The Adjudicating Authority has after considering all the aspects of the matter has rightly refused the amendment application and rejected Section 7 application filed by the appellant - there is no merit in the appeal - appeal dismissed.

Summary

Issues Involved:
1. Rejection of amendment application in Section 7 application.
2. Rejection of Section 7 application as barred by Section 10A of the IBC.

Detailed Analysis:

1. Rejection of Amendment Application in Section 7 Application:

The appellants filed an appeal challenging the order dated 05.01.2024 by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-VI) which rejected their amendment application in Section 7. The appellants sought to amend the date of default from 05.09.2020 to 01.04.2021. The Adjudicating Authority viewed this as an attempt to change the date of default, which was initially stated as 05.09.2020 in Part IV of the Section 7 application. The appellants argued that they had the right to amend the application, citing continuous cause of action under Clause 8 of the Agreement for Sale. However, the Adjudicating Authority found that the amendment would introduce a new plea, which is inconsistent with the original case and intended to overcome the statutory bar under Section 10A of the IBC.

2. Rejection of Section 7 Application as Barred by Section 10A of the IBC:

The Adjudicating Authority also rejected the Section 7 application as it was barred by Section 10A of the IBC. The appellants mentioned the date of default as 05.09.2020, which fell within the period prohibited by Section 10A. The appellants could not provide a satisfactory explanation to justify the amendment of the date of default. The Adjudicating Authority emphasized that allowing such an amendment would negate the legislative bar against filing applications for defaults during the COVID-19 pandemic period. The Authority noted that the appellants' claim of informal settlement discussions did not justify changing the date of default. The Authority concluded that the default occurred on 05.09.2020, and the appellants' attempt to change this date was not supported by any valid justification.

Conclusion:

The Tribunal upheld the Adjudicating Authority's decision, stating that the appellants failed to provide a valid reason for changing the date of default. The Tribunal referred to various judgments, including the Supreme Court's decision in "C Shivkumar Reddy v. Dena Bank," which allows amendments in Section 7 applications depending on the facts and circumstances of each case. However, in this case, the Tribunal found no justifiable cause for the amendment. The Tribunal also noted that Section 10A was introduced to provide relief to corporate debtors during the COVID-19 period, and allowing the amendment would undermine this legislative intent. Consequently, the appeal was dismissed, and the rejection of the Section 7 application was upheld.