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2024 (12) TMI 362 - AT - IBCAdmission of application under Section 7 of IBC filed by the Union Bank of India - application under Section 7 was barred by Section 10A or not - declaration of the account as Non-Performing Asset (NPA) - HELD THAT - Prior to Section 10A period, there is clear acknowledgment by the corporate debtor that there is outstanding amount. During 10A period, two facilities were extended first on 16.09.2020 funded interest term loan (FITL) of Rs.3,21,63,265/- which was repayable by 6th monthly instalment commencing from September 2020. No moratorium was provided and interest to be serviced as and when debited. In the additional affidavit which was filed by the bank before the Adjudicating Authority, statements of account of the Corporate Debtor have been brought on record which indicate that amount of more than Rs.1 Crore was due as on 31.03.2021. Even according to the statement, EMI repayment chart submitted by the Appellant during the course of hearing indicate that there is overdue amount of 5th and 6th EMI and according to own statement of the Appellant, amount due on 31.03.2021 was Rs.1,09,28,247/-. It is clear that the amount has been calculated w.e.f. 31.03.2021. The amount was claimed due on the date of filing of the application. The calculation chart further clearly state that there was default committed by the corporate debtor even after 10A period. There was continuous default after 10A period which was much more than the threshold amount. Counsel for the Appellant has contended that the bank has treated the date of NPA as date of default which is not in accordance with the RBI guidelines. Reference made to the judgment of the Hon ble Supreme Court in Laxmi Pat Surana vs. Union Bank of India Anr. 2021 (3) TMI 1179 - SUPREME COURT where Hon ble Supreme Court has held that ordinarily, upon declaration of the loan account/ debt as NPA that date can be reckoned as the date of default to enable the Financial Creditor to initiate action under Section 7 of the Code. The facts of the present case, clearly indicate that the borrower is liable to undergo insolvency resolution process and the application under Section 7 filed by the Bank cannot be thrown out on the bar of Section 10A. There being default prior to Section 10A period and subsequent to 10A period, order of the Adjudicating Authority admitting Section 7 application need no interference - It is well settled that at the time of admission of Section 7 application, Adjudicating Authority is not called upon to determine the amount of claim of the Financial Creditor who initiated Section 7 application, and those issues are to be left for Resolution Professional to be determined at the time of collation and admission of the claim. However, in view of the legal position that default during 10A period cannot be basis for any proceeding under Section 7 only observe that any amount defaulted during 10A period need not be included in the claim admitted of the Appellant. Appeal dismissed.
Issues Involved:
1. Whether the application under Section 7 was barred by Section 10A of the Insolvency and Bankruptcy Code. 2. Determination of the date of default and its implications on the application. 3. Whether the declaration of the account as Non-Performing Asset (NPA) was valid. 4. The impact of the COVID-19 pandemic and related financial facilities on the default status. 5. The role of the Resolution Professional in computing claims and the exclusion of defaults during the Section 10A period. Issue-wise Detailed Analysis: 1. Section 10A Bar: The appellant argued that the Section 7 application was barred by Section 10A, which prohibits initiation of insolvency proceedings for defaults occurring during the COVID-19 pandemic. The appellant contended that the Funded Interest Term Loan (FITL) sanctioned on 16.09.2020 was during the Section 10A period, and any default in this facility should not trigger insolvency proceedings. However, the Tribunal found that defaults occurred both before and after the Section 10A period. The Tribunal noted that the default on 31.03.2021 exceeded the threshold amount of Rs.1 Crore, making the application valid despite the Section 10A bar. 2. Date of Default: The Tribunal upheld the date of default as 31.03.2021, the date on which the account was declared NPA. It relied on precedents from the Supreme Court, which allow the date of NPA declaration to be considered as the date of default for initiating Section 7 proceedings. The Tribunal emphasized that continuous defaults occurred after the Section 10A period, validating the application under Section 7. 3. Validity of NPA Declaration: The appellant challenged the NPA declaration, arguing it was not in line with RBI guidelines. The Tribunal, however, found that the NPA declaration on 31.03.2021 was consistent with the guidelines, as the account was overdue as of 01.03.2020, and defaults continued after the Section 10A period. The Tribunal referred to the Supreme Court's judgment in "Laxmi Pat Surana vs. Union Bank of India," which supports using the NPA declaration date as the default date. 4. Impact of COVID-19 Financial Facilities: The appellant argued that the issuance of a sanction letter on 25.03.2021 indicated no default as of that date. However, the Tribunal noted that the sanction letter was conditional on zero FITL as of 31.03.2021, which was not met. The Tribunal also considered the bank's calculation sheet, showing substantial outstanding amounts across multiple accounts, reinforcing the existence of defaults beyond the Section 10A period. 5. Role of the Resolution Professional: The Tribunal clarified that the Resolution Professional must exclude defaults during the Section 10A period when computing admitted claims. It emphasized that the adjudicating authority's role at the admission stage is not to determine the exact claim amount, which is the Resolution Professional's responsibility during the collation and admission process. The Tribunal instructed that any amount defaulted during the Section 10A period should not be included in the admitted claim. Conclusion: The Tribunal dismissed the appeal, affirming the order admitting the Section 7 application. It found no error in the Adjudicating Authority's decision, given the defaults before and after the Section 10A period, and the substantial amounts due as of the application date. The Tribunal's decision ensures that Section 7 proceedings can proceed, subject to the exclusion of defaults during the Section 10A period from the claims admitted by the Resolution Professional.
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