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TMI Blog2023 (5) TMI 1350X X X X Extracts X X X X X X X X Extracts X X X X ..... e in appeal before the Hon ble Supreme Court was that since the application was filed on 11.05.2020 i.e. before insertion of Section 10A on 05.06.2020, the application is not hit by Section 10A, although the default was dated 30.04.2020. Present is a case where date of default is claimed as 31.03.2021 in Part IV of the application and the application is filed including the default amount as per the Debenture Trust Deed, Schedule V, the default from 31.03.2021 onwards - What is prohibited by Section 10A is that no application shall ever be filed for the default which occurred during the period of Section 10A i.e. from 25th March, 2020 to 25th March, 2021. Section 10A has no application when an action is initiated for default which occurred subsequent to 10A period. Section 7 application as well as Reply filed to I.A. No. 34/2022 clearly indicate that Section 7 application which was filed by the Financial Creditor wad confined to the default committed by the Appellant on 31.03.2021 and thereafter. The judgment of this Tribunal in M/s Next Education India Pvt. Ltd. vs. M/s K12 Techno Services Pvt. Ltd. [ 2021 (3) TMI 767 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date, tenure and redemption details were mentioned in Schedule V of the Debenture Trust Cum Mortgage Deed. iii. The Appellant on 13.04.2020 wrote to the Debenture Holder seeking a moratorium of five months of repayment of dues. By letter dated 27.04.2020, the Financial Creditor granted three months moratorium for all payments obligations due between 01.04.2020 to 30.06.2020. iv. The Financial Creditor issued notice dated 22.10.2020 to the Appellant pointing out breaches and default on part of the Appellant. The Notice called upon the Appellant to confirm full payment of all dues pertaining to the Debentures from the proceeds of any transaction between the Future Group and Reliance Retail Ventures Ltd. and or any other prospective investor by January, 31, 2021. v. On 01.07.2022, the Financial Creditor issued a notice calling upon the Appellant to make payment of Rs.322,00,09,322/- due and payable as on 20.05.2022, failing which the Financial Creditor was to take appropriate legal action including initiation of proceedings under the I B Code. The notice dated 01.07.2022 was replied by the Appellant on 07.07.2022. The Financial Creditor issued a Rejoinder on 21.07.2022. vi. On 21.10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscretion of the Tribunal to accept one date or the other. Learned counsel for the Appellant placed reliance on judgment of this Tribunal in Next Education vs. K12 Techno Services, Company Appeal (AT) (Ins.) No. 98 of 2019 . 4. Shri Krishnendu Datta, learned senior counsel appearing for the Respondent refuting the submissions of learned counsel for the Appellant submits that the Financial Creditor vide notice dated 22.10.2020 did not exercise its right to accelerate repayment and expressly reserved its right to do so. The notice dated 22.10.2020 cannot be read to be notice for mandatory prepayment. Emphasis on Para 16 of the notice has been laid by learned counsel for the Appellant is baseless. By the notice, the Corporate Debtor was called upon to confirm that it would repay amount from the proceeds of such deal by 31.01.2021. The notice was in relation to the transaction which the Corporate Debtor was proposing to enter into. It is an admitted position that neither did the transaction entered between Future Group and Reliance Group fructify nor did the Corporate Debtor provided any confirmation as called by notice dated 22.10.2020. The application under Section 7 which was filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 ( Offer Letter ) setting out the broad terms on which the Debentures were issued; 7. Schedule V is referred to in above Clause B is as follows: SCHEDULE V PRINCIPAL REPAYMENT DATES Coupon Type Fixed subject to any revision in terms of paragraph 2.2(c) of Schedule II of this Deed. Day Count Basis Actual/Actual Issue Price Rs.10,00,000/- per Debenture Face Value Rs.10,00,000/- per Debenture Issue Amount Rs.250,00,00,000 The Issue Amount is of Rs.250,00,00,000 and has been structured in 5 series (Series A Series E) Series Series-A Series-B Series-C Series-D Series-E Series Amount (Rs. In Cr) 6.20 25.00 50.00 75.00 93.80 Tenure of Days 367 733 1,098 1,463 1,828 Coupon 12.80% 12.80% 12.80% 12.80% 12.80% Frequency of coupon payment Monthly Monthly Monthly Monthly Monthly Date of Coupon Payments On last day of every month and on redemption On last day of every month and on redemption On last day of every month and on redemption On last day of every month and on redemption On last day of every month and on redemption Redemption Details Date (dd/ mm/ yy) Amt. (Rs. In cr) Date (dd/ mm/ yy) Amt. (Rs. In cr) Date (dd/ mm/ yy) Amt. (Rs. In cr) Date (dd/ mm/ yy) Amt. (Rs. In cr) Date (dd/ mm/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat all interest on the Debentures along with all other monies shall, in case the same is not paid on the respective due dates, carry further interest at the rate of 2% per annum over and above the Coupon Rate for the defaulting period. 9. The Coupon and Default Interest accruing on the face value of the Debentures shall accrue from day to day and be calculated on the basis of the actual number of days elapsed at the applicable rate and rounded off to the nearest Rupee. 10. It has to the knowledge of our client that the Original Rating of the Debentures has been downgraded during the period March, 2020 through August, 2020, Whilst the Original Rating of the Company at the time of issuance of the Debentures was BWR A+ (SO), the present Original Rating by Brickwork Ratings India Pvt. Ltd. is BWRD (CE). The Company has also failed to inform our client of the downgrading of the Original Rating. As a result, a clear breach has arisen on part of the Company, s consequence of which the Coupon Rate has been revised in terms of the Transaction Documents. The Company is, therefore, liable to make payment of the accrued Coupon computed at the revised Coupon Rate. 11. The Debenture Holders hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s upon you to forthwith furnish the certificate of the independent Chartered Account certifying the adherence of the financial covenants by the Company as on 31st March, 2020. 10. In the above notice, after narrating certain clauses on transaction document it was stated that company has committed certain breaches in transaction document and failed to make payment. In Para 14, it was clearly stated that the Event of Default has occurred under the Deed and the Financial Creditor in accordance with the terms of the Transaction Documents, reserves its right to accelerate the redemption of the Debentures. The above clause makes it clear that exercise to accelerate redemption of debentures was not done by the notice itself rather right was reserved. 11. Para 15 and 16 of the notice are relevant. What was called upon from the Appellant in the notice is clearly mentioned in Para 16. Para 16 was in reference to Clause 15, where email dated 31.08.2020 was sent by one Mr. Akhilesh Kalra, on behalf of the Issuer that all the amounts due and payable by the Company shall be paid off upon completion of the ongoing transaction between Future Group and Reliance Retail Ventures Ltd. Para 16 clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggregating to Rs. 250,00,00,000/- (Rupees Two Hundred Fifty Crores Only)] DATE(S) OF DISBURSEMENT Purpose: For general corporate purposes including without limitation the acquisition of movable assets and repayment of existing borrowings. Date of Disbursement/ Subscription of NCDs: 28 September 2018 2 AMOUNT CLAIMED TO BE IN DEFAULT AND THE DATE ON WHICH THE DEFAULT OCCURRED A. Default Amount: Total amount payable as on 27th September 2022 is Rs. 275,43,28,128/- (Rupees Two Hundred Seventy-Five Crores Forty-Three Lakhs Twenty-Eight Thousand One Hundred TwentyEight) 3 (ATTACH THE WORKING FOR COMPUTATION OF AMOUNT AND DAYS OF DEFAULT IN TABULAR FORM) B. Date of Default: 31st March2021 [when Debentures were to be redeemed as per the Debenture Trust Cum Mortgage Deed dated 6thDecember 2018]. The Computation of Claim Amount has been annexed herewith at ANNEXURE 5. 15. Now we come to the I.A. No. 34/2022, which was file by the Appellant seeking the rejection of Company Petition as barred by Section 10A. In the application it was pleaded that as per the Financial Creditor default have occurred in October, 2020, hence, claim of the Financial Creditor is clearly hit by Section 10A. Relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otwithstanding anything contained in sections 7, 9 and 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25 March 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf; Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period. 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 25 March, 2020. 16. The Financial Creditor has replied the I.A. No. 34/2022. Paras 5 to 8 of the Reply are relevant which are to the following effect: 5. Part IV of the Petition states that the total amount payable as on September 27, 2022 is Rs.275,43,28,128/-, which includes a principal sum of Rs.210,46,66,250 and interest on such principal of Rs.49,31,58,621/-. Whilst the total claim would be higher, the present Petition is filed only with respect to the default committed after the 10A period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Creditor by a notice dated July 01, 2022, called upon the Corporate Debtor to make repayments of amounts due under the NCDs. Copy of the notice dated July 01, 2022, is annexed as Annexure-D. 17. We have noticed the relevant part of the notice dated 22.10.2020 and the pleading in the I.A. No. 34/2022 and its reply by the Financial Creditor. Now we proceed to consider the rival submissions of the parties, whether application filed by the Financial Creditor under Section 7 was barred by Section 10A. Section 10A provides as follows: 10A. Notwithstanding anything contained in sections 7, 9 and 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf: Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period. Explanation. For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any defa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adopting the construction which has been suggested by the appellant would defeat the object and intent underlying the insertion of Section 10A. The onset of the Covid-19 pandemic is a cataclysmic event which has serious repercussions on the financial health of corporate enterprises. The Ordinance and the Amending Act enacted by Parliament, adopt 25 March 2020 as the cut-off date. The proviso to Section 10A stipulates that no application shall ever be filed for the initiation of the CIRP for the said default occurring during the said period . The expression shall ever be filed is a clear indicator that the intent of the legislature is to bar the institution of any application for the commencement of the CIRP in respect of a default which has occurred on or after 25 March 2020 for a period of six months, extendable up to one year as notified. The explanation which has been introduced to remove doubts places the matter beyond doubt by clarifying that the statutory provision shall not apply to any default before 25 March 2020. 28. The substantive part of Section 10A is to be construed harmoniously with the first proviso and the explanation. Reading the provisions together, it is evide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2023. No defaulted amount included in the Section 7 application is for the period covered by Section 10A, hence, there is no occasion to hold that Section 7 application is barred by Section 10A. 21. We have already noticed the contents of the Notice dated 22.10.2020 which Notice although noted that Appellant has committed default but by the said Notice rights were reserved to take proceedings and the Notice only asked for confirmation from the Appellant, as noted in Para 16 of the Notice. The Notice dated 22.10.2020 in no manner can affect the right of the Financial Creditor to file Section 7 application, which was based on default committed on 31.03.2021 and thereafter. The fact is that it was not open for the Financial Creditor to exercise its right for initiating action under I B Code on defaults, which were committed during the period prohibited by Section 10A and in fact no such rights were exercised nor any action initiated for default which was during the 10A period. The notice dated 22.10.2022 cannot be a fetter in exercising the rights as conferred under the Debenture Trust Cum Mortgage Deed to call for repayment as per the Debenture Trust Cum Mortgage Deed. 22. The judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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