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TMI Blog2023 (9) TMI 1289X X X X Extracts X X X X X X X X Extracts X X X X ..... use 48 of the Circular of the RBI dated 06.08.2020. Section 10A makes it clear that no Application shall ever be filed for initiation of Corporate Insolvency Resolution Process ( CIRP ) if the default occurred during the Section 10A period. What is prohibited was initiation of proceeding under Section 7, 9 and 10 for any default committed by the Corporate Debtor pre 10A period. When we look into Section 7 Application filed by the Corporate Debtor, the Application is not filed on a default under 10A period, rather it was filed on event of default, which has occurred under the One Time Restructuring Agreement dated 21.05.2021, which default occurred on 31.03.2022, when the Corporate Debtor failed to pay interest installments as well as principal installments, which were due by that time. In the present case, there was default committed before implementation of the Plan, as NPA was declared on 29.12.2020. Hence, in the present case, asset classification of the borrower has to be treated to be downgraded with effect from 29.12.2020. Clause 48, is thus only to be read with regard to downgrading to NPA for the relevant date and this Clause 48 is not relevant to find out event of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellant by contending that Application was filed for default during the 10A period. The Application under Section 7 of the Code filed by the Central Bank of India was not for any default committed during 10A period, rather the Application was filed for default committed on 31.03.2022 under the One Time Restructuring Agreement dated 21.05.2021 and the event of default under One Time Restructuring Agreement happened only on 31.03.2022, giving right to the Financial Creditor to take recourse of Section 7 Application, which was rightly done in the facts of the present case - no error has been committed by the Adjudicating Authority, admitting Section 7 Application. Appeal dismissed. - [ Justice Ashok Bhushan ] Chairperson And [ Barun Mitra ] Member ( Technical ) For the Appellant : Mr. Ritin Rai, Sr. Advocate with Ms. Pallavi Pratap, Mr. Mridul Yadav, Ms. Muskan Jain, Ms. Ritika Sinha and Mr. Aman Shukla, Advocates For the Respondent : Mr. Manoj Swarup, Sr. Advocate with Mr. Tushar Singh, Ms. Akshra Akshi, Mr. Neelmani Pant and Mr. Nikhil Sabri, Advocates JUDGMENT ASHOK BHUSHAN, J. This Appeal has been filed against the order dated 09.06.2023 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udicating Authority. A reply was also filed by the Corporate Debtor. The Corporate Debtor also filed an IA No.350 of 2023 for dismissal of petition. In the IA among other grounds, one of the grounds was that the claim of the Applicant is hit by Section 10A of the Code. (vi) The Adjudicating Authority heard the parties and by impugned order admitted Section 7 Application. The Adjudicating Authority rejected the IA No.350 of 2023 and in paragraph 6.1 Company Appeal (AT) (Insolvency) No.837 of 2023 4 held that the petition is not barred by Section 10A. Aggrieved by the said order this Appeal has been filed. 3. We have heard Shri Ritin Rai, learned Senior Counsel for the Appellant and Shri Manoj Swarup, learned Senior Counsel for the Respondent. 4. The learned Senior Counsel for the Appellant submits that as per its own case of the Central Bank of India (hereinafter referred to as the Bank ), the default was committed by the Corporate Debtor on 30.09.2020 and Corporate Debtor s was declared NPA on 29.12.2020, both are hit by Section 10A period. It is submitted that OTR Agreement dated 21.05.2021 refers back to the default to 30.09.2020. Shri Ritin Rai has referred to RBI Circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that three Term Loans were sanctioned by the Central Bank of India, i.e., Term Loan-I, Term Loan-II and Term Loan-III. The default was committed by the Corporate Debtor in repayment of the Term Loans on 30.09.2020, hence the NPA was declared on 29.12.2020. The Reserve Bank of India to mitigate the hardship and financial stress caused due to Covid-19 pandemic, issued Circular dated 06.08.2020. Paragraphs 2 and 3 of the Circular are as follows: 2. The economic fallout on account of the Covid-19 pandemic has led to significant financial stress for borrowers across the board. The resultant stress can potentially impact the long-term viability of many firms, otherwise having a good track record under the existing promoters, due to their debt burden becoming disproportionate relative to their cash flow generation abilities. Such wide spread impact could impair the entire recovery process, posing significant financial stability risks. 3. Considering the above, with the intent to facilitate revival of real sector activities and mitigate the impact on the ultimate borrowers, it has been decided to provide a window under the Prudential Framework to enable the lenders to implement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2020 on Resolution Framework for COVID-19 related Stress. Ref: Your request for OTR. We are pleased to inform you that our Management Committee of the Board at Central Office in its Meeting held on 21.05.2021 has approved the following: i. Restructured our existing Term Loans; Term Loan-1, Term Loan-2 and TermLoan-3, with total balance outstanding of Rs.351.67 crore as on cut-off date of 25.11.2020. ii. Extended the Repayment schedule of Term Loan-1 Term Loan-2 by 18 months under OTR (over and above 7 months already allowed under RBI regulatory packages with commencement of Repayment period from 31.03.2022. iii. Extended the Repayment Period of Term Loan-3 by 13 months under OTR with commencement of Repayment Period from 31.03.2022. iv. Approved to fund the interest on T1,1,T1, II and T1, III for the period November 2020 to February 2022 as Fresh FITL, of Rs.51.71 crore with ROI @ 8% repayable in 24 equal monthly installments from March 2022 to Feb 2023. Interest on FITL will be serviced as and when applied. v. Permitted reversal of the excess charged interest on Term Loan (Over the proposed FITL Interest Rate of 8% as per OTR plan) amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2020 already allowed by RBI). With respect to FITL: Principal moratorium the period between November 2020 to February 2022. 13. Sub-clauses (a) to (h) of Clause 2.1 - Restructuring of Loan of the OTR Agreement is as follows: 2.1 Restructuring of Loans a) The Parties agree and acknowledge that the Outstanding Loans and FITL, as of the Cut-off Date are as under a. Outstanding Loans (Loans): INR 400.27 Crore, which include the following i. TL-I : INR 64.00 Crore ii. TL-II : INR 136.98 Crore iii. TL-II : INR 150.69 Crore and iv. Term Loan-BOB: 48.60 Crore and b. FITL: INR 59.15 Crore, which includes the following i. TL-1, TL-II TL-III: INR 51.71 Crore ii. Term Loan-BOB : INR 7.44 Crore b) Upon execution of this Agreement all the rights and obligations of the Parties under the Original Loan Agreement and other Existing Finance Documents shall stand supplemented by the rights and obligations under this Agreement. c) The Parties agree that the provisions of Original Loan Agreement and other Existing Finance Documents shall, unless specifically identified and amended by these presents, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Borrower shall repay the FITL in the manner provided in the Amorisation Schedule. (ii) Without prejudict to the rights of the Lenders under the Finance Documents, in the event of insufficiency of funds, the Borrower shall repay the Loans and FITL on pro-rata basis. (iii) The Lenders may, in suitable circumstances, revise or vary the repayment of the principal amounts of the Loans and FITL, which has been disbursed or the balance outstanding for the time being or any installment(s) of the said principal amounts under the Loans and FITL, or any part thereof upon such terms and conditions as may be decided by the Lenders in consultation with the Borrower. 15. Clause 8.1 deals with Event of Default. Clause 8.1 (a) and (b) provides as follows: 8.1 Event of Default Each of the following events shall constitute an Event of Default under this Agreement: (a) Default by the Borrower in the payment of any installment of the principal amount under the Loans and FITL on the Due Date. (b) Default by the Borrower in payment of any installment of interest on the Loans and FITL on any Interest Payment Date. 16. Clause 8.2 deals with Consequences o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following: 2. Amount claimed to be in default and the date on which the default occurred (Attach the workings for computation of amount and days of default in tabular form) Total Dues Rs.420,13,90,040.33 (Rupees Four Hundred and Twenty Crore Thirteen Lakhs Ninety Thousand and Forty and paise Thirty Three Only) as on 29.05.2022 along with interest other charges. As per One Time Restructuring (OTR) sanction, default amount is as follows: Account No. Interest Default (Rs.) Principle Default (Rs.) Total Default (Rs.) 3477749319 63,25,737.00 1,67,00,000.00 2,30,25,737.00 3584012656 1,40,36,237.00 2,34,00,000.00 3,74,26,237.00 3794693317 1,35,71,903.00 1,76,00,000.00 3,11,71,903.00 5106517570 35,09,369.56 2,15,00,000.00 2,50,09,369.56 Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the Financial Creditor which have fallen due for repayment on 31.03.2022 As per the sanctioned terms of OTR, on account of default towards non-payment of Principal and interest to the financial Creditor, the said accounts of the Corporate Debtor were downgraded to SMA-2 category with effect from on 31.03.2022 and on account of continuous default for 30 days from the date of default i.e. 31.03.2022; the accounts have slipped to NPA on 30.04.2022. Under RBI guidelines on Resolution Frameworks for COVID-19 related stress dated 06.08.2020 07.09.2020, If the borrower is in default with any of the signatories to the ICA (Inter Creditor Agreement) at the end of the review period, the asset classification of the borrower with all the lending institutions, including those who did not sign the ICA, shall be downgraded to NPA from the date of implementation of Resolution plan or the date from which the borrower had been classified as NPA before implementation of the Plan, whichever is earlier. Since OTR has failed in the account, the actual date of NPA was ascertained at 29.12.2020 (90 days from actual date of actual default i.e., 30.09.2020). Further as the OTR has fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation. - For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any default committed under the said sections before 25th March, 2020. 21. Section 10A makes it clear that no Application shall ever be filed for initiation of Corporate Insolvency Resolution Process ( CIRP ) if the default occurred during the Section 10A period. What is prohibited was initiation of proceeding under Section 7, 9 and 10 for any default committed by the Corporate Debtor pre 10A period. When we look into Section 7 Application filed by the Corporate Debtor, the Application is not filed on a default under 10A period, rather it was filed on event of default, which has occurred under the One Time Restructuring Agreement dated 21.05.2021, which default occurred on 31.03.2022, when the Corporate Debtor failed to pay interest installments as well as principal installments, which were due by that time. The submission, which has been pressed by the learned Counsel for the Appellant is that default under Restructuring Agreement has to relate back to the original default which in the present case was during 10A period being default on 30.09.2020. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.2. The One Time Restructuring Agreement, which is entered between the parties, i.e., the Corporate Debtor and the Central Bank of India and is binding on the parties. The event of default is clearly contemplated and event of default is default by the borrower in making payment of installment of principal amount or installment of interest on the lines of FITL or any interest payment. Default under Clause 8.1 can be committed only after implementation of the One Time Restructuring Agreement and the default referred to under Clause 8.1 is not a any default under the Original Loan Agreement. As noted above, by the One Time Restructuring Agreement an amount of Rs.51.71 Crores was granted as Fresh Funded Interest of the Term Loan, which was disbursed to the Corporate Debtor and default with regard to the said amount can be committed only when there is a default in repayment of FITL disbursement. 23. The learned Senior Counsel for the Appellant has relied on the judgment of the Hon ble Supreme Court in Rakesh Kymal vs. Siemens Games Renewable Power Pvt. Ltd. (2021) 3 SCC 224, in which case the Hon ble Apex Court had occasion to consider Section 10A. The underlying rationale for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 020 whereas an Ordinance No.09/2020 was Promulgated by the President of India from 05.06.2020, by which Section 10A was inserted in the Code. It was contended that the Application was filed prior to Ordinance when Section 10A was brought into force, which argument was rejected. The ratio of the judgment is well settled that with regard to a default committed under Section 10A, no Application can ever be filed for the said default. Thus, what is prohibited is initiation of proceedings for any default committed during 10A period. In the present case, Application under Section 7 was not filed for default committed during 10A period, rather the Application was specifically filed for default committed under the OTR Agreement, which is committed on 31.03.2022, which was much subsequent to 10A period. The mentioning of date 29.12.2020 as NPA in Section 7 Application was on account of Clause 48 of the RBI Circular dated 06.08.2020, which downgraded the Corporate Debtor in event of any default committed under One Time Restructuring Agreement. By mentioning NAP date, i.e., 29.12.12020, which was in obedience of the Clause 48, no benefit can be made by the Appellant by contending that Applica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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