2024 (11) TMI 132 - AT - IBC

Validity of the order admitting petition filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 - precise grievance of the Appellant is that the Financial Creditor has given various dates of default i.e. in column II of Part IV the date of default has been mentioned as 20.02.2020 and in the same column it is mentioned that the default has been committed since January, 2020 - whether the recall notice dated 06.11.2020 by which a period of 15 days was given to the CD to pay off the defaulted amount has to be considered to be the date of default as 21.11.2020 to hold that the application filed under Section 7 is hit by Section 10A of the Code? HELD THAT - The loan was advanced by the FC to the CD in two tranches, based on the agreement to which both the parties were bound, Clause 5.1.1 of the agreement deals with the dues to be repaid by the CD in which schedule 1 of the agreement states that due date shall be as per the repayment schedule and schedule 2 and repayment schedule in schedule 2 reproduced hereinabove, clearly shows the due date of the amount of instalment etc. There is no dispute that the amount of instalment was to be paid on monthly basis. The CD did not pay the monthly instalment from Jan, 2020 which was due to be paid on 20th Jan, 2020 rather it was paid in month of Feb, 2020 but without the penal interest, therefore, the entire amount due was not paid - The CD cannot be permitted to take advantage of the fact that the FC had issued a notice of recall dated 06.11.2020, giving 15 days time, to the CD to pay the same and to calculate the date of default as 21.11.2020 which falls within the cut off period of Section 10A because issuance of recall notice, in pursuance of the clause 10.3 of the agreement, was on the occurrence of any of the events of default, which had already occurred in the month of January or at the most February. It does not mean that the default has occurred with the issuance of recall notice as the notice was a consequence of the occurrence of default and it was a procedural step for recalling of the entire loan amount. The argument raised by the Appellant has no legs to stand because the default had occurred in the month of Jan, 2020 partly when the amount of penal interest was not paid and fully when the entire amount was not paid in Feb, 2020. Section 10 A postulates that the CIRP cannot be initiated either under Section 7, 9 or 10 if the default occurs during the cut of period i.e. 25.03.2020 to 25.03.2021. In the present case, Section 10A would not apply because the date of default occurred much prior to 25.03.2020. There are no merit in the present appeal and the same is hereby dismissed.

Summary

Issues:
Validity of order admitting CP under Section 7 of the Insolvency and Bankruptcy Code, 2016; Interpretation of loan agreement terms; Default in repayment and issuance of loan recall notice; Application of Section 10A of the Code.

Analysis:
The Appellant, as the Promotor/Director of the Corporate Debtor, challenged the order admitting the insolvency petition under Section 7 of the Insolvency and Bankruptcy Code, 2016. The case revolved around a loan agreement between the Financial Creditor and the Corporate Debtor, where the repayment terms were specified. The Financial Creditor alleged default in repayment by the Corporate Debtor, leading to the initiation of insolvency proceedings.

The key issue in the appeal was the interpretation of the loan recall notice dated 06.11.2020 and its impact on the default date. The Appellant argued that the default occurred only when the repayment period granted in the recall notice expired on 21.11.2020, falling within the Section 10A period. However, the Financial Creditor contended that the default had already occurred in Jan or Feb 2020, prior to the Section 10A period, as per the terms of the loan agreement.

The Tribunal analyzed the repayment schedule, default dates, and the issuance of the recall notice. It concluded that the default had occurred before the Section 10A period, as the Corporate Debtor failed to pay the monthly instalments in Jan and Feb 2020. The recall notice was seen as a procedural step following the default, not the trigger for default. Therefore, the Tribunal dismissed the appeal, finding no merit in the Appellant's arguments regarding the application of Section 10A.

The Tribunal distinguished a previous judgment cited by the Appellant, highlighting that the facts of that case were different as the default fell within the Section 10A period. Ultimately, the appeal was dismissed, and no costs were awarded.

This judgment clarifies the application of Section 10A in insolvency cases, emphasizing that the date of default is crucial in determining its applicability. The analysis focused on the contractual terms, repayment obligations, and the timing of default events to reach a decision on the validity of the insolvency petition.