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2025 (3) TMI 338 - AT - IBCMaintainability of Section 9 application filed by the Operational Creditor - the application was premised on default which had arisen during the prohibited period of Section 10A of IBC - HELD THAT - The law is well settled in the landmark judgment of the Hon ble Supreme Court in Ramesh Kymal Vs Siemens Gamesha Renewable Power Pvt. Ltd. 2021 (2) TMI 394 - SUPREME COURT that no application for initiation of CIRP under Section 9 can be initiated for default which is committed during the Section 10A period. The Ramesh Kymal judgment made it crystal clear that if any Corporate Debtor suffered default on account of Covid-19 they should be protected from the filing of any insolvency application in respect of default committed by them during this prohibited period. Thus any default committed after 15.03.2020 till 28.02.2022 (extended period of suo-motu limitation) enjoyed complete immunity from initiation of CIRP proceedings. The legislative intent of introducing Section 10A into the scheme of IBC was to protect the Corporate Debtor from being shoved into the morass of insolvency in the extenuating circumstances inflicted by the Covid-19 pandemic. In the present facts of the case the payment schedule given in the Settlement Deed barring one instalment due on 28.02.2020 the rest of the other instalments fell due from 31.03.2020 to 31.12.2020 which were all hit by Section 10A of the IBC on the date of filing of Section 9 application by the Operational Creditor which took place in September 2020 the major portion of the default claimed by the Operational Creditor in the said Section 9 application clearly fell within the protected and prohibited period under Section 10A. Any default falling within this period cannot form the basis for initiating CIRP. The default which occurred during the Section 10A period therefore cannot be included in the calculation of debt and default for initiating CIRP. In the present case when the portion of debt claimed by the Operational Creditor falling within the Section 10A period is excluded the remaining debt does not fulfil the mandatory threshold of Rs 1 Cr. The default amount having failed to cross the threshold bar as laid down by Section 4 of IBC the Section 9 application of the Operational Creditor was rendered non-maintainable. Conclusion - In the present case since the entire payment in terms of the Settlement Deed has already been made even though paid belatedly the contumacious behaviour of the Operational Creditor in harassing the Corporate Debtor not countenanced even after having received the entire payment as per Settlement Deed. Such rapacious and intimidatory conduct on the part of any Operational Creditor cannot be tolerated as such conduct violates the quintessential sprit of IBC which is insolvency resolution. The Corporate Debtor is released from the rigours of CIRP - The impugned order cannot be sustained and is set aside. The Appeal is allowed.
1. **ISSUES PRESENTED and CONSIDERED**
The primary issue considered was whether the Section 9 application filed by the Operational Creditor was maintainable, given the alleged default by the Corporate Debtor occurred during the period protected by Section 10A of the Insolvency and Bankruptcy Code (IBC), which prohibits the initiation of corporate insolvency resolution process (CIRP) for defaults arising during a specified period due to the COVID-19 pandemic. 2. **ISSUE-WISE DETAILED ANALYSIS** Relevant Legal Framework and Precedents: The legal framework primarily involved the interpretation of Section 10A of the IBC, which suspends the initiation of CIRP for defaults arising on or after March 25, 2020, for a period of six months, extendable up to one year, to protect businesses affected by the COVID-19 pandemic. The Ramesh Kymal Vs Siemens Gamesha Renewable Power Pvt. Ltd. case was a significant precedent, establishing that defaults during this period could not trigger CIRP. Court's Interpretation and Reasoning: The Tribunal interpreted Section 10A as providing immunity to corporate debtors for defaults occurring during the specified period. It emphasized that the legislative intent was to prevent insolvency proceedings for defaults caused by the pandemic. The Tribunal noted that most of the default claimed by the Operational Creditor fell within this protected period. Key Evidence and Findings: The Tribunal examined the payment schedule outlined in the Settlement Deed between the parties, noting that only one installment was due before the Section 10A period, while the others fell within it. The Tribunal found that the default claimed by the Operational Creditor was largely during the period protected by Section 10A. Application of Law to Facts: The Tribunal applied Section 10A to exclude defaults occurring during the protected period from being considered for initiating CIRP. It recalculated the outstanding debt, excluding amounts due during the Section 10A period, and found that the remaining debt did not meet the threshold requirement for initiating CIRP. Treatment of Competing Arguments: The Appellant argued that the Section 9 application was not maintainable due to the Section 10A protection and the lack of a debt meeting the threshold requirement. The Respondent contended that the Corporate Debtor's delay in payment breached the Settlement Deed, justifying the continuation of CIRP. The Tribunal favored the Appellant's argument, emphasizing the protective intent of Section 10A. Conclusions: The Tribunal concluded that the Section 9 application was not maintainable as the default claimed fell within the Section 10A period, and the recalculated debt did not meet the threshold requirement. It highlighted the misuse of IBC provisions by the Operational Creditor. 3. **SIGNIFICANT HOLDINGS** Verbatim Quotes of Crucial Legal Reasoning: "The legislative intent of introducing Section 10A into the scheme of IBC was to protect the Corporate Debtor from being shoved into the morass of insolvency in the extenuating circumstances inflicted by the Covid-19 pandemic." "The outstanding default can be correctly determined only after making the necessary exclusion. The Appellant was therefore clearly entitled to seek exclusion of the sum falling during this prohibited period from the purported debt claimed by the Operational Creditor." Core Principles Established: The Tribunal established that defaults occurring during the Section 10A period cannot form the basis for initiating CIRP. It reinforced that the IBC's purpose is to aid in the revival of corporate debtors, not to serve as a debt recovery tool. Final Determinations on Each Issue: The Tribunal set aside the impugned order admitting the Section 9 application, released the Corporate Debtor from CIRP, and imposed costs on the Operational Creditor for pursuing the application vexatiously. It emphasized the need for adherence to the protective provisions of Section 10A and discouraged the misuse of IBC processes.
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