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TMI Blog2025 (2) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... itor under Section 7 of the Insolvency and Bankruptcy Code, 2016 (in short, the "Code"). 2. The CIRP application was filed before the Adjudicating Authority (in short, the "AA") on the ground that the CD has defaulted to repay the Financial Creditor an amount of Rs. 21,37,94,606/- (Rupees Twenty-One Crore Thirty-Seven Lakhs Ninety-Four Thousand Six Hundred Six only) as on 30.09.2022. 3. The brief facts of the case are as follows: (i) Barracks Retail India Pvt. Ltd./CD was incorporated on 25.01.2016, under the Companies Act, 2013, with its registered office in Mumbai, focusing on garment manufacturing. In early 2017, CD sought funding from Bharat Co-operative Bank (Mumbai) Limited (in short the "Bank") to support its operations. On 21.03.2017, the bank sanctioned a Term Loan of Rs. 5 crores for capital expenses, repayable through monthly EMIs, along with a Rs. 25 lakh Cash Credit limit for working capital. To secure these facilities, the CD pledged assets, including 41 nonagricultural plots in Vikramgarh, Maharashtra, on 30.03.2017, and executed a series of security documents, including a Deed of Mortgage, hypothecation agreements, and personal guarantees. (ii) On 08.06.2018, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entire outstanding Interest/ Overdue Principal amount. As on date of declaration of the NPA i.e. 01.11.2019 the aggregate principal outstanding amount of the CD was Rs 16,21,73,514/-. (vii) The Bank issued a notice to recall the facilities on 19.03.2021 under Section 13(2) of SARFAESI Act 2002 requiring the CD to pay all the outstanding under all credit facility accounts within 60 days from the date of receipt of the said notice. (viii) The Bank vide assignment agreement dated 25.03.2021, assigned CD's loans in favour of ASREC (India) Limited / Respondent-1, which assumed debt recovery rights including all agreements, deeds and documents thereto and all collateral and underlying security Interests and or pledges created to secure and /or guarantees issued in respect of, the repayment of loans. (ix) Thereafter, the Respondent-1 filed an application under Section 7 of the Code on 18.02.2023, for initiating CIRP against the CD, citing a default date of 31.10.2020. The CD objected to the said petition invoking Section 10A of the Code, which prohibits CIRP for defaults during the COVID relief period. ASREC/R-1 amended its application, changing the default date to 02.08.2019, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the appellant highlights that the Bank deferred interest payments for the period from 01.03.2020 to 31.08.2020 in compliance with the Reserve Bank of India's (RBI) COVID-19 Regulatory Package. This deferment aimed to provide relief to borrowers during the pandemic. Since the original date of default cited by the respondent allegedly arose post- 17.03.2020, during the moratorium period, the appellant contends that it should be exempt from CIRP initiation as per Section 10A of the IBC. The protective provisions of Section 10A explicitly cover defaults occurring during the pandemic, rendering the initiation of CIRP against CD unwarranted under law. 8. The counsel for the appellant stated that different dates of default have been shown in different documents. In the notice dated 19.03.2021 under Section 13(2) of SARFAESI Act, the date of NPA is mentioned as 31.03.2020. In the Assignment of Debt documents, the date of Default as accepted by the Respondent is mentioned as 31.10.2020. Further, the counsel for the appellant asserted that the respondent has attempted to substantiate its claims by referencing a recall notice issued on 07.12.2020, as well as the date of default (31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicating Authority is fundamentally flawed due to the omission of critical evidence, notably the recall notice dated 07.12.2020, from its findings. This omission, coupled with the incorrect reliance on the alleged default date of 02.08.2019, undermines the integrity of the Impugned Order and suggests a misinterpretation of the facts presented. The appellant contends that the failure to consider this key evidence has resulted in a legally untenable decision, and therefore, requests the Hon'ble Tribunal to set aside the Impugned Order on this ground. 13. The counsel also submitted that the RBI Circular dated 01.07.2019 clarifies that it is the bank which declares the account as NPA and not the RBI, in this regard he invited the attention to para 2.2.10 of the aforesaid circular, which is reproduced below: "2.2.10 NPA Reporting to Reserve Bank Banks should report the figures of NPAs to the Regional Office of the Reserve Bank at the end of each year within two months from the close of the year in the prescribed proforma given in the Annex-2." 14. Finally, summing up his arguments counsel for the appellant stated that the Ld. Adjudicating Authority has disregar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, modify or change at any time any of the terms and conditions of the sanction at its sole discretion without assigning any reasons." 16. One of the mandatory terms of the sanction letter is the promoters of CD were supposed to bring in Promoter's contribution i.e. 15% of the Bank's sacrifice. This is a mandatory condition as prescribed under the RBI IRAC guidelines. 17. The counsel submitted that the Covid 19 epidemic started from March 2020 onwards. The RBI conducted inspection of the FC in September 2020- October 2020 for the financial year FY 2019-20. During the inspection by RBI, it was found that Promoter of CD never brought in his contribution in furtherance of the restructuring as mentioned in the Sanction Letter dated 17.03.2020 and hence, RBI found CD ineligible for any restructuring of their loan facilities. 18. Pursuant to inspection, Bank issued letter dated 07.12.2020 to the CD and its promoters communicating that the CD was ineligible for restructuring of their loan facilities and Bank recalled all the loan facilities granted to CD. The promoters of CD never responded to the said letter dated 07.12.2020. 19. The counsel further stated that the Bank had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RBI officials on 31.10.2020 as of 01.11.2019. Since the date of default is calculated from 90 days prior to the date of NPA ie. 01.11.2019, the actual date of default committed by CD was on 02.08.2019. iv. The counsel further stated that it is most important to note that RBI had declared the loan accounts of CD as NPA as of 01.11.2019 during inspection and risk assessment of Bharat Co-operative Bank Limited and the same will prevail over other dates mentioned in the present appeal as the date of NPA. v. The counsel further invited our attention to the Hon'ble Supreme Court's judgment in Laxmi Pat Sunara vs. Union Bank of India & Another (2021) 8 SCC 481 wherein in Paragraph - 43 the Court has held that original date of default does not change merely because of human error. It has been further held by the Hon'ble Supreme Court in the said judgment that the period of limitation would be attracted from the date when the default occurs and not from the date of declaration of NPA. Therefore, the date of NPA cannot be taken to be the date of default for the purpose of limitation. The extract of Para 43 of Laxmipat Surana (supra) is extracted below: "Ordinarily, upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f RBI IRAC guidelines sets out certain conditions which are to be complied with for restructuring of loan accounts. The same is extracted below: "2.2.7.29:-However, these benefits will be available subject to compliance with the following conditions: (v) Promoters' sacrifice and additional funds brought by them should be a minimum of 15% of banks' sacrifice." ii. The counsel submitted that RBI being a regulatory authority determined that compliance to the sanction letters were not met and hence the CD was ineligible for restructuring and to that extent sanction letter dated 17.03.2020 became void ab-initio and the same was not tenable in the eyes of law. Therefore, the date of NPA became 01.11.2019 and the original date of default would be 02.08.2019 i.e. 90 days prior the date of NPA as per RBI IRAC Guidelines. 23. The counsel further stated that the Corporate Debtor neither objected to the amendment sought by Respondent No. 1 in date of default nor they preferred any appeal before the Hon'ble NCLAT against the amendment orders. Pursuant to filing of reply by the Corporate Debtor before Ld. Adjudicating Authority in original C.P. (IB) No. 280/2023, Respondent No. 1 so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to carry out amendment was sought initially, then the Appellant is barred from raising objections regarding such amendments at the stage of Appeal. He submitted that in light of the abovementioned submissions, the present company appeal filed before the Hon'ble Court deserves to be dismissed with costs. Analysis and Findings 26. We have heard the parties in detail and perused the records. Parties have also filed their written submissions which has been taken on record. 27. Upon careful examination of the facts, evidence, and submissions presented in this appeal, it is evident that the core issue revolves around the validity of the amended default date cited by the respondent and the applicability of Section 10A of the Code. The appellant has challenged the order of the Adjudicating Authority, which admitted the Corporate Insolvency Resolution Process (CIRP) application filed by the respondent. The appellant contends that the initial default date of 31.10.2020 falls within the moratorium period under Section 10A, rendering the CIRP application invalid. The respondent, however, argues that the default date was subsequently amended to 02.08.2019, predating the Section 10A per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 7(1) to furnish records of the default recorded with the information utility or such other record or evidence of default as may be specified; the name of the resolution professional proposed to act as an Interim Resolution Professional and any other information as may be specified by the Insolvency and Bankruptcy Board of India. 75. Section 7(4) of the IBC casts an obligation on the Adjudicating Authority to ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor within fourteen days of the receipt of the application under Section 7. As per the proviso to Section 7(4) of the IBC, inserted by amendment, by Act 26 of 2019, if the Adjudicating Authority has not ascertained the existence of default and passed an order within the stipulated period of time of fourteen days, it shall record its reasons for the same in writing. The application does not lapse for non-compliance of the time schedule. Nor is the Adjudicating Authority obliged to dismiss the application. On the other hand, the application cannot be dismissed, without compliance with the requisites of the Proviso to Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BC. When the Adjudicating Authority calls upon the applicant to cure some defects that defect has to be rectified within seven days. There is no penalty prescribed for inability to cure the defects in an application within seven days from the date of receipt of notice, and in an appropriate case, the Adjudicating Authority may accept the cured application, even after expiry of seven days, for the ends of justice. 144. There is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with application under Section 7 of the IBC in Form-1. In the absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that the Adjudicating Authority committed any illegality or error in permitting the Appellant Bank to file additional documents. Needless however, to mention that depending on the facts and circumstances of the case, when there is inordinate delay, the Adjudicating Authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was held that defaults occurring during the COVID-19 moratorium period, covered under Section 10A of the Code are protected from Corporate Insolvency Resolution Process (CIRP) initiation. The appellant argues that their default should also fall within this COVID-19 moratorium and be protected by Section 10A. They assert that the default occurred within the period specified under Section 10A, thus rendering the initiation of CIRP legally barred. 36. However, in the present case, Unlike Plus Corporate Ventures (Supra), where the default date clearly fell within the Section 10A period, there is dispute in the current case, over whether the default indeed occurred during this period. The respondent asserts that the default date was August 2, 2019, which predates the Section 10A moratorium period. This amended default date, places the present case outside the protective scope of Section 10A. As such, the ratio of Plus Corporate Ventures to this case does not apply. 37. The appellant has also placed reliance on this Appellate Tribunal's judgement in Pradeep Madhukar More vs. Central Bank of India, Company Appeal (AT) (Insolvency) No. 837 of 2023, decided on September 26, 2023, to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t must demonstrate a direct link between the default and the COVID-19 impact, aligning with the findings in Ramesh Kymal and Sanjeev Builders. In this case, the respondent's contention that the original default date was August 2, 2019, prior to the pandemic, suggests that the default was unrelated to COVID-19, and therefore falls outside Section 10A's scope. The appellant's argument is further complicated by the bank's actions, as the restructuring implies acknowledgment of the pre-pandemic default rather than a fresh default related to COVID-19. Thus, the respondent's substantiation of an August 2019 default date does not support the appellant's reliance on cases such as Plus Corporate Ventures and Gaurav Hargovindbhai Dave vs. Asset Reconstruction Company (India) Limited & Anr., (2019) 10 SCC 572, which both reinforce Section 10A's protections, but do not support defaults predating the pandemic. 41. The appellant has also argued that the amendment of the default date by the respondent constitutes procedural manipulation aimed at bypassing Section 10A protections. However, it is seen that the amendment was duly made during the CIRP proceedings before the AA, as per laid d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles established in precedent cases, where the courts have consistently held that restructuring efforts do not alter the classification of a loan as a Non-Performing Asset (NPA), unless significant repayments or compliance with revised terms occur. 45. Section 10A of the IBC was introduced to provide relief to businesses affected by the economic impact of the COVID-19 pandemic by precluding insolvency proceedings for defaults occurring between 25.03.2020 and 25.03.2021. The appellant's reliance on Section 10A is premised on the initial default date of 31.10.2020, which falls within this protected period. However, the respondent's assertion of a default on 02.08.2019 predates the moratorium period, rendering Section 10A inapplicable. The appellant has failed to provide evidence that directly links the default to the impact of the pandemic. The mere fact that restructuring occurred in March 2020 does not, in itself, establish that the default arose during the Section 10A period. Consequently, the appellant's reliance on precedents such as Plus Corporate Ventures Pvt. Ltd. v. Transnational Growth Fund Ltd. is misplaced, as these cases involved defaults unequivocally occurring w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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