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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 ..... ate of 31.10.2020, which was later amended to 02.08.2019. The tribunal permitted this amendment on 13.10.2023. The revised date is crucial as it aims to establish that the default occurred outside the Section 10A exemption period (introduced to protect defaults during the COVID-19 pandemic). In Dena Bank v. C. Shivakumar Reddy and Another [2021 (8) TMI 315 - SUPREME COURT] Dena Bank sought to initiate insolvency proceedings against a corporate debtor by filing a Section 7 application with the NCLT. The bank' s petition was based on the default date related to a Non- Performing Asset (NPA) declared years earlier. Dena Bank later sought to rely on new documents and amendments. Hon'ble Supreme Court vide judgement ruled that amendments to the application or submission of additional documents could be made before the final order admitting or rejecting the petition under Section 7. The Court clarified that the law does not explicitly bar such amendments, as they support the IBC's goal of comprehensive debt recovery. However, the Court noted that such amendments should not manipulate the limitation period, but may reflect new acknowledgments of debt or judgments creating a fresh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e moratorium period, rendering Section 10A inapplicable - The respondent's actions in initiating CIRP are consistent with the objectives of the IBC, which prioritize the resolution of insolvency cases in a time-bound manner to maximize asset value and ensure the equitable treatment of creditors. The evidence presented demonstrates the corporate debtor's prolonged financial incapacity and failure to fulfill its debt obligations despite multiple opportunities to restructure and repay. The respondent, as a financial creditor, is entitled to seek relief under the IBC when defaults are established and substantiated by documentary evidence.
Conclusion - The amendment of the default date was correctly allowed and that the default date of 02.08.2019 was valid, rendering the protections under Section 10A inapplicable.
There are no infirmity in the impugned order of the Adjudicating Authority - appeal dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5.25 crore without gaining ownership of Eye Catch's assets, adding to CD's debt burden without the intended business advantage. (iii) On the request of CD dated 20.12.2019 the Bank sanctioned revised financial facilities to the CD vide sanction letter dated 17.03.2020 as detailed below: Facilities Amount in lacs Sanction letter Cash Credit 300 BCB/NSW/327/2020 dated 17.03.2020 WCTL-1 800 FITL of WCTL-1 122.90 WCTL-2 15.41 FITL of WCTL-2 1.65 Term loan 505.40 FITL of existing term loan 74.65 WCTL-3 19.97 FITL of WCTL-3 2.13 (iv) With the onset of COVID-19, as per RBI Guidelines the Bharat Cooperative Bank provided temporary relief, including an additional facility of Rs. 9,48,531/- on 01.09.2020 to cover interest costs, and allowing CD to defer payments. The CD through its letter of acknowledgement of debts, documents and securities and consent of borrowers, joint borrowers and sureties dated 01.09.2020 had acknowledged the availing of credit facilities. (v) The Bank vide a letter dated 07.12.2020 issued a notice to CD recalling the entire outstanding along with further interest @10% from 01.01.2021 till clearance of entire outstanding loan amount withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ld. Counsel for the appellant submits that this appeal is filed by Mr. Puneet P. Bhatia, the suspended director of Barracks Retail India Private Limited, under Section 61 of the Insolvency & Bankruptcy Code, 2016 (IBC). The appellant contends that the Impugned Order should be set aside due to significant errors in fact and law. 5. The counsel for the appellant argues that the default date cited by the respondent falls within the period protected under the IBC's "10A" provision, which shields certain defaults occurring during the COVID-19 pandemic from CIRP proceedings. This period, introduced as a regulatory relief measure by the Government of India, was aimed at alleviating the financial distress, businesses faced due to the pandemic and was enacted specifically to prevent companies from being pushed into insolvency. As the alleged default falls within this "10A" period, the appellant asserts that the petition under Section 7 of the IBC is not maintainable. 6. It is further submitted by the counsel for the appellant that the Bank sanctioned two distinct credit facilities for CD. The first facility was granted on 21.03.2017, comprising a fresh term loan of INR 10 crores and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the IBC. 10. The appellant's counsel states that the respondent unilaterally altered the date of default from 31.10.2020 to 02.08.2019 during the proceedings, intending to bypass the protections of the 10A period. This unilateral alteration is both inappropriate and inconsistent with the terms of the restructuring facility dated 17.03.2020, which included a fresh credit limit and a distinct date of default. By introducing a new date of default without the appellant's agreement, the respondent disregarded the contractual obligations binding on both parties. The appellant cites the judgement of this Appellate Tribunal in Pradeep Madhukar More v. Central Bank of India Company Appeal (AT) (Insolvency) No. 837 of 2023, which holds that restructuring dates, once established, remain legally binding on both parties and any subsequent change must follow due legal process. 11. Furthermore, counsel for the appellant stated that the respondent's attempt to justify its claims by relying on the recall letter dated 07.12.2020 is legally flawed. The RBI guidelines stipulate that it is the lending bank that has the authority to classify accounts as Non-Performing Assets (NPA), rather than th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that first issue to be determined is whether date of default falls during 10A exemption period or not? In this regard he mentioned the following: i. The CD was irregular in making payments and made an application to the Bank on 21.12.2019 for restructuring of their loan facilities. The Bank issued Sanction Letter dated 17.03.2020 to restructure the loan accounts subject to CD satisfying the terms and conditions of the sanction letter. ii. The terms and conditions of the Sanction Letter dated 17.03.2020 provided authority to the Bank to revoke said sanction letter dated 17.03.2020 and facilities granted thereunder, at any time, if the CD defaulted in fulfilling the terms and conditions of the said sanction letter. The para 2 of the bank sanction letter is extracted below: 2. The Bank without assuming any liability, shall be entitled to: i. withhold or cancel or revoke the credit facility/ies at once, if it is found hereafter that any information documents/ particulars furnished is /are incorrect, forged/misleading. Likewise, the Bank shall be entitled to discontinue the facilities in case of material changes in the circumstances/conditions which in the opinion of Bank will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, the date of NPA was restored back to 01.11.2019 and consequently the date of default restored to 02.08.2019 i.e. original date of default. 21. In regard to the issue about the amendment of date of default mentioned in application under Section 7 of the Code, the counsel for Respondent No. 1 made the following submissions: i. The counsel stated that RBI conducted inspection of all the loan accounts maintained with FC for financial year 2019-20 taking into consideration financials till 31.03.2020. Upon inspection, the loan accounts of Appellant CD were classified as "Doubtful Asset" as on 31.03.2020. ii. Doubtful Asset as defined in RBI Master Circular on Asset Classification are the loan accounts which have remained Non- Performing Asset for more than 12 months from the date of declaration of loan accounts as NPA. The relevant para is extracted below: "3.2.3 Doubtful Assets With effect from March 31, 2005, an asset is required to be classified as doubtful, if it has remained NPA for more than 12 months. For Tier I banks, the 12-month period of classification of a substandard asset in doubtful category is effective from April 1, 2009. As in the case of sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In cases where the corporate person had offered guarantee in respect of loan transaction, the right of the financial creditor to initiate action against such entity being a corporate debtor (corporate guarantor), would get triggered the moment the principal borrower commits default due to non-payment of debt. Thus, when the principal borrower and/or the (corporate) guarantor admit and acknowledge their liability after declaration of NPA but before the expiration of three years therefrom including the fresh period of limitation due to (successive) acknowledgments, 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 IBC ensures. 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 incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor submits that Affidavit in Rejoinder has been filed and placed on record; however, Ld. Counsel for the Corporate Debtor takes objection contending that the Financial Creditor is attempting to modify its Original case by way of Affidavit in Rejoinder. 3) Accordingly, Counsel for the Financial Creditor seeks leave of this Bench to amend the Company Petition thereby amending Form 1 Part IV, to deal with the objections. Leave as prayed is allowed. The Respondent shall be at liberty to contest the amendment, on merits. 4) Financial Creditor is directed to carry out the necessary amendment forthwith and the amended copies be served on the other side and parties concerned, well before the adjourned date. 5) Corporate Debtor shall file and place on record Affidavit in Reply, if they so desire, by duly serving a copy to the other side well in advance. 6) Stand over to 24.11.2023, for further consideration and hearing." 24.11.2023:- Both the parties are present. 2. This bench permits Financial Creditor to file an amendment affidavit, the Corporate Debtor seek one (1) week time which is granted to file reply. 3. Listed on 08.12.2023." (Emphasis Supplied) 24. The coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deadlines, resulting in the debt claimed by ASREC. 30. ASREC (India) Limited/R-1 initially filed its Section 7 petition stating a default date of 31.10.2020, which was later amended to 02.08.2019. The tribunal permitted this amendment on 13.10.2023. The revised date is crucial as it aims to establish that the default occurred outside the Section 10A exemption period (introduced to protect defaults during the COVID-19 pandemic). 31. In interpreting whether the National Company Law Tribunal (NCLT) can allow amendments to the date of default in applications filed under Section 7 of the Insolvency and Bankruptcy Code (IBC), we have seen the Judgement of Hon'ble Supreme Court in Dena Bank v. C. Shivakumar Reddy and Another [Citation: (2021) 10 SCC 330]. The relevant paragraphs 26, 73, 74, 75, 76, 77, 91, 93 and 144 are extracted below: "26. A third issue which arises for adjudication of this Court is, whether there is any bar in law to the amendment of pleadings, in a Petition under Section 7 of the IBC, or to the filing of additional documents, apart from those filed initially, along with the Petition under Section 7 of the IBC in Form-1. 73. Since a Financial Creditor is requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Adjudicating Authority shall, before rejecting the application under sub- section (b) of Section 5, give notice to the applicant, to rectify the defects in his application, within 7 days of receipt of such notice from the Adjudicating Authority. 77. The Corporate Insolvency Resolution Process commences on the date of admission of the application under sub-section (5) of Section 7 of the IBC. Section 7(7) casts an obligation on the Adjudicating Authority to communicate an order under clause (a) of sub-section (5) of Section 7 to the financial creditor and the corporate debtor and to communicate an order under clause (b) of sub-section (5) of Section 7 to the financial creditor within seven days of admission or rejection of such application, as the case may be. Sections 8 and 9 of IBC pertain to Insolvency Resolution by an operational creditor and are not attracted in the facts and circumstances of this case. Section 10 pertains to initiation of Corporate Insolvency Resolution Process by the Corporate Debtor itself, and is also not attracted in the facts and circumstances of the case. 91. On a careful reading of the provisions of the IBC and in particular the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments and amendments. Hon'ble Supreme Court vide judgement (supra) ruled that amendments to the application or submission of additional documents could be made before the final order admitting or rejecting the petition under Section 7. The Court clarified that the law does not explicitly bar such amendments, as they support the IBC's goal of comprehensive debt recovery. However, the Court noted that such amendments should not manipulate the limitation period, but may reflect new acknowledgments of debt or judgments creating a fresh cause of action. 33. The Dena Bank judgment (supra) explicitly states that in the proceedings under the CIRP before the NCLT, there is no scope for elaborate pleadings. An application to the Adjudicating Authority (NCLT) under Section 7 of the IBC in the prescribed form, cannot be compared with the plaint in a suit. Such application cannot be judged by the same standards, as a plaint in a suit, or any other pleadings in a Court of law. It further clarifies that under the provisions of Section 7 of the Code, NCLT can allow amendments to pleadings under the CIPR proceedings before the final order is passed. 34. We observe that in the present case als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive source for establishing default, the present case presents a different scenario. The respondent claims that the original default date was August 2, 2019, before the restructuring agreement. Their contention is that restructuring does not reset the default timeline, but merely acknowledges a pre-existing default. We observe that the documentary evidence cited in Pradeep Madhukar More clearly supported the restructuring date as a new timeline for default. However, we observe that in the present case, there were repeated restructuring of the loan and the appellant failed to fulfil its obligations under the restructuring, which was the essential condition for the restructuring leading to is failure. Accordingly, as per the clauses of the restructuring the bank had recalled the loan facility and after due notice filed SARFAESI case for loan recovery. The failure of restructuring therefore did not lead to any change in date of default. 39. The appellant further argued that the debt arrangement in this case should fall under the blanket protections of the Section 10A moratorium, as payments were restructured in March 2020 due to the COVID-19 pandemic. This interpretation is in conson ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity in this case has correctly followed the laid down process and the judgement of Dena bank (supra) is applicable squarely in this case. We therefore hold that the amendment of date of default has been correctly allowed by AA. 43. In determining the validity of the amended date of default, it is crucial to examine the evidence relied upon by the respondent. It is seen that RBI as the regulatory authority during the inspection of the bank found that compliance with the conditions laid down in the sanction letters were not met and hence the CD was ineligible for restructuring. Accordingly, due to noncompliance the extent sanction letter dated 17.03.2020 became void ab-initio and the same was not tenable in the eyes of law. Banks have to mandatorily comply with the guidelines of the RBI in this regard. 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. The amended date of 02.08.2019 is also supported by records from the National EGovernance Services Limited (NESL) database, which confirms the occurrence of a default prior to the COVID-19 moratorium period. 44. Furthermore ..... X X X X Extracts X X X X X X X X Extracts X X X X
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