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TMI Blog2024 (5) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... ever be filed for initiation of CIRP of for the said default occurring during the said period , which signifies that the Parliament clearly envisaged to bar initiation of any application for CIRP, in respect of default which has occurred on or after 25.03.2020 for a period as notified from time to time. Section 10 A of the Code, by nature, is preventive and prohibitory and begins with non obstante clause i.e., notwithstanding anything contained in Section 7,9 and 10 and therefore, places complete embargo for initiation of CIRP under these Sections for the period beginning with 25.03.2020 till stipulated period. However, explanation clarify the position that Section 10 A is not meant to be applicable or embargo for initiation of CIRP for default occurred prior to 25.03.2020. The bar on the filing of application for the commencement of CIRP during stipulated period does not extinguish the debt owed by the Corporate Debtor and creditors/ lenders may continue to exercise their rights to pursue their legal remedies under Section 7,9 and 10. In the present appeal, the Appellant fairly stated that due occurred on the last date of February, 2020 but was payable on 01.03.2020. Hence, stric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal Appellant/ Financial Creditor) under Section 61 of the Insolvency Bankruptcy Code, 2016 (in short Code ) in Company Appeal (AT) (Insolvency) No. 1052 of 2022 against the Impugned Order dated 13.06.2022 passed by the National Company Law Tribunal, Allahabad Bench, Prayagraj (in short Adjudicating Authority ) in CP (IB) No. 05/ALD/2022 . 2. An I.A. No. 991 of 2023 was filed under Rule 11 r/w Rule 31 of the National Company Law Appellate Tribunal Rules, 2016 by J.C. Flowers Asset Reconstruction Private Limited ( in short the Appellant) seeking its substitution as the Appellant/ Financial Creditor in place of Yes Bank on the virtue of an assignment agreement executed between the J.C. Flowers Asset Reconstruction Private Limited and the Axis Bank on 16.12.2022 for the loan given to the Corporate Debtor by the Yest Bank which has been assigned to the Applicant. The Application was allowed by this Appellate Tribunal on 06.03.2023 and as such J.C. Flowers Asset Reconstruction Private Limited replaced the Yest Bank Limited as the Appellant. 3. Laxmi Oil and Vanaspati Private Limited the Corporate Debtor is the Respondent herein. 4. Heard the Counsel for the Parties and perused the recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cilities of the Respondent, which has also not been serviced by the Respondent till date. 9. The Appellant, on failure of the Respondent, for non adherence to terms as per the signed facility agreement and keeping in view the RBI Guidelines, the Appellant declared the Respondent as NPA on 20.07.2020 i.e., due to non submission of stock statement by the Respondent for a continued period on 6 months as last stock statement was submitted by the Respondent for the month of December, 2019. 10. The Appellant vide letter dated 27.08.2020 issued a loan recall notice to the Respondent and vide letter dated 07.09.2020 the guarantee extended by the guarantors were also invoked. 11. The Appellant emphasised that despite several reminders and request to the Respondent, the Respondent did not honour the terms of facility agreement and the debt remained unpaid as on 31.08.2021 for Rs. 25,99,34,488/- . 12. The Appellant submitted that despite his best efforts, due to failure of the Respondent, he filed an application under Section 7 of the Code for initiating Corporate Insolvency Resolution Process (in short CIRP ). However, the Adjudicating Authority vide its Impugned Order dated 13.06.2022, dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. Union Bank of India [(2020) SCC Online SC 1187]. 19. The Appellant pointed out that the Respondent relied upon the circulars issued by the Reserve Bank of India, imposing moratorium from 01.03.2020, which is a clear admission of the debt falling due before the period enshrined under Section 10 A of the Code and submitted that the Respondent cannot take the benefit of both the RBI circulars as well as Section 10 A of the Code. 20. The Appellant pointed out that the Circular issued by the RBI on 27.03.2020 was merely for the purpose of deferring the recovery of monies falling due between March 1, 2020 and May 31, 2020 and since the Respondent defaulted in making payment of interest due on 28.02.2020 in terms of value date as provided in the account statement of the Corporate Debtor, the same is not covered as per RBI Circular on this aspect. 21. The Appellant explained that in his banking system, the instalment become due on the last date of every month and is payable on the first day of the next month. As such the default occurred on 28.02.2020 and payable on 01.03.2020 and in this regard, the Appellant reiterated that RBI Circular is not applicable as the RBI Circular used the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant date was loan recall notice issued on 27.08.2020 which falls in the period as satisfied under Section 10 A of the Code. 32. The Respondent pointed out that the alleged default occurred during the prohibited period between 25.03.2020 and 31.03.2021 for which no action under Section 7 of the Code could have been taken in terms of provision of Section 10 A of the Code. 33. Concluding his arguments, the Respondent requested this Appellate tribunal to dismiss the appeal. Findings 34. We note that Section 10 A of the Code was introduced by amendment Act of 2020 dated 05.06.2020 with the purpose to support the business and industry who were adversely affected due to covid 19 pandemic. Section 10 A of the Code provides temporary suspensions on initiation of CIRP, which was provided initially for six months with the provision to be extended from time to time as notified. 35. We note that proviso to Section 10 A clearly mentions that no application shall ever be filed for initiation of CIRP of for the said default occurring during the said period , which signifies that the Parliament clearly envisaged to bar initiation of any application for CIRP, in respect of default which has oc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 27. 24 We have already clarified that the correct interpretation of Section 10A cannot be merely based on the language of the provision; rather it must take into account the object of the Ordinance and the extraordinary circumstances in which it was promulgated. It must be noted, however, that the retrospective bar on the filing of applications for the commencement of CIRP during the stipulated period does not extinguish the debt owed by the corporate debtor or the right of creditors to recover it. 26 The date of the initiation of the CIRP is the date on which a financial creditor, operational creditor or corporate applicant makes an application to the adjudicating authority for initiating the process. On the other hand, the insolvency commencement date is the date of the admission of the application. This distinction is also evident from the provisions of sub-section (6) of Section 7, sub-section (6) of Section 9 and sub-section (5) of Section 10. Section 7 deals with the initiation of the CIRP by a financial creditor; Section 8 provides for the insolvency resolution by an operational creditor; Section 9 provides for the application for initiation of the CIRP by an operationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tipulated period of 25.03.2020. 42. The moot question in the present appeal would be to determine when actually the default took place and whether this was covered under Section 10A of the Code. 43. In this regard, we would like to take into consideration part (IV) of the application filed by the Appellant before the Adjudicating Authority. 44. From above is seen that in particular of financial debt, amount claimed is Rs. 25,99,34,488.25/- as on 06.09.2021 and date of default mentioned as 28.02.2020 along with date of NPA as 20.07.2020. 45. From part IV we also note that vide letter dated 20.12.2019, the Appellant asked the Respondent to comply with the requirement mentioned in the facility agreement. It is further noted that part IV mentioned that on 28.02.2020, the Corporate Debtor failed to make repayment and hence default took place. Part IV also states that as per RBI Guidelines, the Corporate Debtor was declared as NPA on 20.07.2020 and loan recall notice was issued on 27.08.2020. It is also mentioned that despite several reminder, the Corporate Debtor failed to comply the terms of facility agreement and therefore the Appellant filed an application under section 7 of the Code ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the last date of February, 2020 but was payable on 01.03.2020. Hence, strictly speaking the date of default can not be 28.02.2020 as claimed by the Appellant in Part IV and at best could be as 01.03.2020 i.e., when it became payable. 51. Unless the debtor commits default, CIRP against him cannot be initiated under the Code. The words Due and Payable used in definition of default in section 3 (12) means that the default debt must be subsisting debt. The terms default is defined in Section 3(12) of the Code in very wide terms as nonpayment of a debt once it becomes due and payable, which includes nonpayment of even part thereof or an installment. A creditor is not only required to establish the existence of a debt but is also required to prove that the corporate debtor has defaulted in payment of the debt and if he fails to establish the same, the CIRP cannot be initiated by the Adjudicating Authority. In other words, the mere fact of a debt being due and payable is not adequate to justify the initiation of CIRP at the instance of the creditor, unless the default on the part of the Debtor is established. 52. We note that RBI vide its Circular No. RBI/2019-20/186 dated 27.03.2020 perm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 27.03.2020 moratorium was permitted for instalment between 01.03.2020 to 31.05.2020, and this moratorium period and was later enhanced from 01.06.2020 to 31.08.2020 vide RBI/2019-20/244 Circular dated 23.05.2020. 58. We have already noted the content of Part IV of the application mention the date of default as 28.02.2020 and date of NPA as 20.07.2020 and further mentioned that loan was recalled vide letter dated 27.08.2020. 59. We would like to take into account the loan recall notice dated 27.08.2020 mentioned by the Appellant in Part IV of the application which reads as under : - 60. From Part 3 of the above loan recall notice, it is seen that it has been alleged that the Respondent did not honour the terms and conditions of the agreement and neglected to submit the stock statement to the bank, which was pending since January, 2020 resulting in accounts of borrowers being declared as NPA on 20.07.2020 in accordance with the RBI Guidelines. It further stated that in these circumstances bank has become entitled to recall the facilities and declare the facility as due and payable and accordingly the bank called upon the Respondent to pay the bank the outstanding amount under t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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