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TMI Blog2024 (4) TMI 1066X X X X Extracts X X X X X X X X Extracts X X X X ..... alculate and fix the exact amount of repayment. Whether the date of NPA declaration (September 27, 2019) or the date of Loan Recall Notice (August 11, 2020) constitutes the default date? - HELD THAT:- In adherence to Reserve Bank of India (RBI) regulations, the classification of Non-Performing Assets (NPAs) serves as a pivotal measure for maintaining the financial health and stability of the banking sector. When a borrower defaults on loan payments for a stipulated period, typically 90 days, the loan account is rightfully classified as an NPA. This classification isn't arbitrary; it's a well-defined threshold indicating a lapse in repayment obligations - In the present case, a loan instalment due on June 30, 2019, remains unpaid. Following the regulatory protocol, on September 27, 2019, marking the 90th day of default, the loan account was rightly categorized as an NPA. This classification is not an arbitrary punishment but rather a consequence of a fundamental breach of repayment terms. Crucially, the onus lies on the borrower to rectify the default and regularize the loan account. Unfortunately, in this instance, the borrower, despite ample opportunity, failed to address ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant : Ms. Ritwika Nanda, Advocate For the Respondent : Mr. Siddharth Sangal and Mr. Chirag Sharma, Advocates for R-1/SBI Mr. Vinod Chaurasia and Mr. Sajjan Kumar Dokania, Advocates for RP JUDGMENT ( Hybrid Mode ) [ Per : Arun Baroka , Member ( Technical ) ] The present Appeal has been preferred under Section 61 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the ( IBC Code ) against the Impugned Order dated 14.09.2023 (hereinafter referred to as Impugned Order ) passed by the Hon ble National Company Law Tribunal (NCLT), New Delhi Bench-VI in the matter titled as State Bank of India Vs. Jabalpur MSW Pvt. Ltd. [CP (IB) No. 417/ND/2021], inter alia, admitting the Application filed by the Respondent No. 1 i.e. State Bank of India under Section 7 of the IBC Code (hereinafter referred to as Section 7 Application ) against Jabalpur MSW Private Limited (hereinafter referred to as Corporate Debtor ). The Appeal has been filed by Mr. Milind Kashiram Jadhav, the Suspended Director of the Corporate Debtor: Jabalpur MSW Private Limited. Brief facts of the case 2. The Respondent, a Financial Creditor, filed an Application with the NCLT seeking insolvency proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor's obligations as per the Sanction Letter. In the event of any remediable default occurrence, a suitable cure period shall be provided from the date of such event. 10. The relevant part of the Clause 16 is reproduced herewith: Events of Default - Each of the following shall, inter alia, constitute an Event of Default under the Financing Documents: a) Payment Default: The Borrower does not pay on the due date any amount payable by it under any Financing Documents; b) Breach of obligations: The Borrower does not comply with any material provision of the Financing Documents or Material Project Documents; c) Misrepresentation: A representation, warranty or statement made or repeated in or in connection with any Financing Documents or Material Project Documents or in any document delivered by or on behalf of the Borrower is incorrect d) Inadequate security and insurance; e) Breach of any undertaking furnished by Sponsor, f) Cross default of the Borrower under any of the Material Project Documents; g) Utilization of facility for purposes other than for which they have been granted; h) Change on control of the Borrower without the prior written approval of the Lenders; i) Defau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including but not limited to the acceleration of the maturity of the Facility. 14. Till the time the acceleration of the maturity of the Facility in terms of the Sanction Letter does not occur, the entire outstanding amount as per the Facility/Loan Agreement does not become due and / or payable by the Corporate Debtor to the Financial Creditor. And if the entire loan outstanding is not due and payable, a default of debt cannot arise. 15. In the instant case, the Financial Creditor, in utter breach of the terms of the Sanction Letter, had failed to issue an intimation of Event of Default and had failed to provide any period of cure to the Corporate Debtor. 16. Specifically speaking on 11.08.2020, the Financial Creditor issued a Loan Recall Notice to the Corporate Debtor. It is by way of this Loan Recall Notice that the Financial Creditor accelerated the repayment of the loan facility/ recalled the entire outstanding loan amount to be payable within 7 Company Appeal (AT) (Insolvency) No. 1589 of 2023 7 of 26 days from the receipt thereof. Thus, at best, considering the date of the Loan Recall Notice, the total outstanding due amount under the Sanction Letter fell due and payable on 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appended with the Application, it shall be evident that the Corporate Debtor made substantial payments even after being classified as a Non Performing Asset on 27.09.2019 and default, if any, stood cured on such payments being made. 21. Appellant submits that the event of default, if any, as per the terms of the Sanction Letter and the Loan Recall Notice, has arisen in the month of August, 2020, i.e., 7 days after the receipt of Loan Recall Notice dated 11.08.2020 by the Corporate Debtor, which clearly falls between the period of 25.03.2020 to 24.03.2021 for which the initiation of corporate insolvency resolution process was statutorily barred under Section 10A of the IBC, 2016 and therefore, no Application could ever be filed for initiation of Corporate Insolvency Resolution Process against the Corporate Debtor. Alleged Debt of Rs. 46,79,88,297.64 at best arose on 11.08.2020 when the loan was recalled vide the Loan Recall Notice dated 11.08.2020 and Default in respect thereof arose, at best, on 18.08.2020 and proceedings in respect thereof is barred in terms of Section 10A IBC. 22. The IBC Code, 2016 clearly defines the default date as the date of occurrence of event of default bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndard 25. Thus, it is stated that the Section 7 Application did not establish a Default as is sought to be alleged by the Respondent No. 1. At Sl. No. 6 of Part V of the Section 7 Application, the Respondent No. 1 had annexed the CRILIC Report dt. 22.06.20218. The said document does not bear out any default and also classifies the account of the CD as Standard . 26. Appellant claims that Date of NPA is not equivalent to Default as per IBC and the records of the Respondent No. 1 establishes payments by the Corporate Debtor even after the date NPA. 27. As per the Statement as filed by the Respondent No. 1, it shall be evident that the Corporate Debtor has been duly making payment, as under: Alleged Interest Due and Penal Interest (as on 28.02.2021) Payment made (as on 28.02.2021) Rs. 7,15,01,164.39 Rs. 9,43,88,000.00 Rs. 1,40,31,623.25 Rs. 1,90,31,977.00 Thus, it is stated that SOA with the Section 7 Application was grossly incorrect and fabricated. 28. Corporate Debtor was a going concern and that the Respondent No. 1 had been appropriating payments / monies even till the filing of the written submissions in the matter. Submissions of Respondent- Financial Creditor - State Bank of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of default and no 'Cure Period' Notice was given for Event of Default and the Loan Recall Notice was issued only on 11.08.2020 in which 7 days' time was given for payment, thus, 18.08.2020 could only be a date of default which date falls within the Section 10A period. 36. Once the default of payment of loan/debt/instalment continues for 90 days the loan accounts are classified as NPA on which the entire loan outstanding becomes due. Thus, the default commenced 90 days prior and the entire outstanding became due and payable on the date of NPA on 27.09.2019. Therefore, the Respondent No. 1-Bank was within its rights to take further recourse for resolution of the Corporate Debtor under the IBC, 2016 on the strength of the default which was evidenced by the date of NPA. 37. The Loan Recall Notice dated 11.08.2020 was issued only to provide the CD with one more chance to make payment of all the outstanding dues, and was rather issued because the loan accounts of the CD were classified as NPA on 27.09.2019. Thus, the NPA Date of 27.09.2019 was true and correct date of default for all intents and purposes including the Section 7 IBC Application. Sufficient time and opportu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Eight Thousand Two Hundred and Ninety-Seven and Paise Sixty-Four Only), much above the threshold required under the IBC. 42. Once the loan is taken by the CD, it was fully aware that it has to service the interest as per the loan documents, thus, the said obligation of the CD need not be reminded or intimated to the CD. The CD was a party to the loan documents. It has to be aware of its obligations under the said documents. 43. The account of the CD was changed to 'in default' twice before classifying the account as NPA on 27.09.2019. Further, even if the failure of the CD in payment of the loan instalment is construed as an 'Event of Default', the Sanction Letter or even the loan documents nowhere postulate that the Bank has to intimate such default to the CD, because the CD is in fact already aware of his obligation of making payments and is also aware of the consequences of non-payment of loan instalments. 44. CD offered OTS twice to the consortium also goes to show that the CD was fully aware of its default. 45. Since the non-payment of the loan instalment may be an 'event of default', the CD ought to have been given a cure period notice by the Bank whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... call notice. Thus, it is wrong to suggest, on the part of the Appellant that since 7 days' period from loan recall notice dated 11.08.2020 expired on 18.08.2020, the date of default shall be 18.08.2020. The loan accounts were classified as NPA on 27.09.2019 which default continued; thus, the date of default is correctly posted as 27.09.2019 in the Section 7 IBC Application. 48. Section 3(12) of the IBC deals with the expression 'Default' to mean non-payment of debt when whole or any part of instalment of the amount has become due and payable, thus, when on the loan accounts being classified as NPA the whole of the debt is due and payable - it is a 'Default' under the IBC, thus, the date of NPA can be taken as the date of default. 49. Allegations of the Appellant are only technical in nature to divert the attention which have no bearing on the Section 7 IBC Application. Appraisal : 50. Heard counsels of rival parties and also perused documents placed before us. 51. Briefly speaking, Appellant s main arguments are that the date of default should be the date of the Loan Recall Notice (August 11, 2020) because they made payments between the NPA declaration (Septembe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no requirement in the adjudication of Section 7 application to calculate and fix the exact amount of debt in default of repayment. It is only to be seen whether the amount in default is more than the minimum or threshold value that is prescribed in Section 4(1) of the IBC. [ Company Appeal (AT) (Ins.) No. 662-663 of 2022: Suzlon Synthetics Ltd. v. Stressed Asset Stabilization Fund (2022) 145 taxmann.com 594 ( NCLAT-New Delhi ) ] [ Emphasis supplied ] 55. The only other major issue is with respect to the date of default whether the date of NPA declaration (September 27, 2019) or the date of Loan Recall Notice (August 11, 2020) constitutes the default date, which is examined in next few paragraphs. 56. In adherence to Reserve Bank of India (RBI) regulations, the classification of Non-Performing Assets (NPAs) serves as a pivotal measure for maintaining the financial health and stability of the banking sector. When a borrower defaults on loan payments for a stipulated period, typically 90 days, the loan account is rightfully classified as an NPA. This classification isn't arbitrary; it's a well-defined threshold indicating a lapse in repayment obligations. 57. Consider the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application. [ Emphasis supplied ] 64. And in the instant case the default was occurring 90 days prior to the NPA declaration (September 27, 2019). It is difficult to accept the argument of the Appellant that this date should not be treated as the date of default. 65. Now we briefly examine the contention of the Appellant that the date of default should align with the recall notice date which is 11.08.2020, asserting that the provisions of the loan agreement were violated by the Financial Creditor's failure to provide a cure period notice as stipulated in the Sanction Letter. 66. Corporate Debtor (CD) relies on a Sanction Letter dated 04.08.2014, which is issued well before the enactment of the Insolvency and Bankruptcy Code (IBC) 2016. The events of default outlined in this letter aim primarily at recovery of amounts owed, rather than seeking the 'resolution' of the CD under the IBC. It s crucial to note that the CD was afforded a statutory period of 90 days from the date of the first irregulari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgments, it is not possible to extricate them from the renewed limitation accruing due to the effect of Section 18 of the Limitation Act. Section 18 of the Limitation Act gets attracted the moment acknowledgment in writing signed by the party against whom such right to initiate resolution process Under Section 7 of the Code enures. Section 18 of the Limitation Act would come into play every time when the principal borrower and/or the corporate guarantor (corporate debtor), as the case may be, acknowledge their liability to pay the debt. Such acknowledgment, however, must be before the expiration of the prescribed period of limitation including the fresh period of limitation due to acknowledgment of the debt, from time to time, for institution of the proceedings Under Section 7 of the Code. Further, the acknowledgment must be of a liability in respect of which the financial creditor can initiate action Under Section 7 of the Code. [ Laxmi Pat Surana vs. Union Bank of India and Ors. ( 26.03.2021 SC ) (2021) 8 SCC 481 ] [ Emphasis supplied ] 69. Default event is also elucidated by another judgement of Hon ble Apex Court as extracted below: The scheme of the IBC is to ensure that when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the information utility or such other record or evidence of default as may be specified; .. and in this case record of default with the information utility was filed and is on record. In such a case there is no relevance of other documents as claimed by the Appellant and Admission cannot be disallowed on this ground. Conclusions : 74. The loan accounts of the Corporate Debtor were officially classified as Non-Performing Assets (NPA) on September 27, 2019, following 90 days of non-payment, thereby triggering a default event. Despite subsequent partial payments made by the borrower, the NPA status and default persisted, indicating a continuous state of default. Consistent with established judicial precedents and the specific circumstances of the case, the date of NPA classification serves as the valid Date of Default for initiating insolvency proceedings. Even after the NPA classification, the borrower remained in default. Consequently, September 27, 2019, the date of NPA classification, stands as the date of default under the Insolvency and Bankruptcy Code (IBC), superseding any subsequent events, such as the loan recall notice issued on August 18, 2020. The Adjudicating Autho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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