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TMI BlogWHETHER THE DATE OF DEFAULT CAN BE CHANGED AFTER FILING THE PETITION UNDER SECTION 7 OF THE INSOLVENY BANKRUPTCY CODE?X X X X Extracts X X X X X X X X Extracts X X X X ..... WHETHER THE DATE OF DEFAULT CAN BE CHANGED AFTER FILING THE PETITION UNDER SECTION 7 OF THE INSOLVENY BANKRUPTCY CODE? X X X X Extracts X X X X X X X X Extracts X X X X ..... C. SHIVAKUMAR REDDY AND ANR. - 2021 (8) TMI 315 - SUPREME COURT , in 2011, Dena Bank sanctioned a term loan of to the Corporate Debtor, which was to be repaid in 24 quarterly instalments. The Corporate Debtor defaulted in repayment and their account was declared Non-Performing Asset ('NPA' for short) in December 2013. In 2014, the Bank sent a letter to the Corporate Debtor to repay the outstanding dues. However, no payment was made. In 2015, the Bank initiated proceedings before the Debts Recovery Tribunal ('DRT' for short) for recovery of outstanding dues from the Corporate Debtor. By a letter dated 05.01.2015, the Corporate Debtor requested the Bank to restructure the loan. Again, on 03.03.2017, while proceedings were pending before DRT, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Corporate Debtor gave an offer for one time settlement of the term loan account, which was rejected by the Bank. On 27.03.2017, DRT passed an order against the Corporate Debtor for recovery of outstanding dues to the Bank. In May 2017, DRT issued a Recovery Certificate in favour of the Bank. Thereafter in June 2017, the Corporate Debtor once again gave the Bank a proposal for one time settlement to mutually settle the loan amount. In October 2018, the Bank sought initiation of corporate insolvency resolution process against the Corporate Debtor. It filed a petition under Section 7 of the Code before the National Company Law Tribunal, Bengaluru. Thereafter, twice in 2019, the Bank filed applications for permission to place additional do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cuments on record. Both these applications were allowed by NCLT. In March 2019, NCLT passed an order to admit the Section 7 petition filed by the Bank. The Corporate Debtor challenged the order of NCLT in an appeal under Section 61 IBC before the National Company Law Appellate Tribunal ('NCLAT' for short). The NCLAT allowed the appeal reversed the order of NCLT. Aggrieved by the order of NCLAT the Bank approached the Supreme Court, by filing an appeal. The Supreme Court observed that it is imperative that provisions of the Code and Rules and Regulations framed thereunder be construed liberally, in a purposive manner to further the objects of enactment of the statute, and not be given a narrow, pedantic interpretation which defeats its pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes. On reading the provisions of the provisions of Section 7(2) to (5) read with the 2016 Adjudicating Authority Rules, the Supreme Court reached a conclusion that there is no bar to the filing of documents at any time until a final order either admitting or dismissing the application has been passed. The Supreme Court held that the Supreme Court held that the Section 7 petition (amended) filed by Dena Bank was admissible. In PUNEET P. BHATIA VERSUS ASREC (INDIA) LTD. AND MR. GANESH VENKATA SIVA RAMA KRISHNA REMANI - 2025 (2) TMI 71 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI, the corporate debtor availed financial facilities from the Co-Operative bank, Mumbai, in the present appeal in the year 2017. The sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me was assigned to the respondent in the present appeal in the year 2021. The corporate debtor did not pay the dues to the financial creditor and thus it became a NPA on 01.11.2019. The date of default is 02.08.2019. The Financial Creditor initiated CIRP against the corporate debtor. In the application filed before the Adjudicating Authority the Financial Creditor mentioned the date of default as 30.10.2020, under the protection of Section 10A of the Code. The Financial creditor later sought to amend the date of default as 02.08.2019 by the Adjudicating Authority. The corporate debtor raised objections against this. However, the Adjudicating Authority allowed the application and amended the date of default. Against the order of Adjudicating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Authority, the present appeal was filed before the NCLAT. The appellant contended that the amendment of the default date by the financial creditor constitutes procedural manipulation aimed at bypassing Section 10A protections. The NCLAT considered the following questions for its consideration to be decided in the present appeal- * Whether the date of default can be changed after filing the petitioner under Section 7 of the Code? * Whether in the present case the date of default has been correctly identified? The NCLAT observed that the Adjudicating Authority noted the updated default as 02.08.2019 relying on financial records, sanction letters and debt assignment documents provided by the Financial Creditor to substantiate the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for default and validate the claim and allowed the amendment. The NCLAT did not agree with the contentions of the appellant that the amendment constitutes procedural manipulation aimed at bypassing Section 10A protections. The NCLAT observed that the amendment was duly made during the CIRP before the Adjudicating Authority as laid down procedure following the principles of natural justice. The Adjudicating Authority exercised its discretion appropriately in allowing the amendment. The appellant has not demonstrated any prejudice resulting from this amendment or any procedure irregularities in the decision of Adjudicating Authority to permit it. The NCLAT relied on the judgment in 'Dena Bank' (supra) in which it was held that under the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of Section 7 of the Code the Adjudicating Authority can allow the amendments of pleadings under the CIRP before the final order is passed. According to the said order the Adjudicating Authority is empowered to allow the parties to amend the pleadings before the final order is passed in CIRP, subject to the procedure laid down in the Code. The NCLAT observed that the Adjudicating Authority in this case has correctly followed the procedure as laid down in the Code. The judgment in 'Dena Bank' (supra) is squarely applicable to this case. The NCLAT, therefore, held that the amendment of the date of default has been correctly allowed by the Adjudicating Authority. The NCLAT, the considered the next question as to the validity of the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fault date. The NCLAT examined the evidences relied upon by the respondent. The Reserve Bank of India, during the inspection of the bank that the conditions laid down in the sanction letters were not met. Accordingly, the corporate debtor was not eligible for restructuring. Due to this noncompliance, the extant sanction letter dated 17.03.2020 became void ab initio. The banks have to mandatorily comply with the guidelines of the Reserve Bank of India in this regard. Therefore, the NCLAT held that the date of NPA became 01.11.2019 and the original date of default became 02.09.2019, i.e., 90 days prior to the date of NPA as per the guidelines of Reserve Bank of India. The default date 02.09.2019 is also supported by records obtained from Nati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal E-Governance Services Limited database, which confirms the occurrence of a default to the COVID 19 moratorium period. The action taken by the respondent in initiating CIRP against the corporate debtor is consistent with the objectives of the Code. The Code prioritises the resolution in insolvency cases in a time bound manner to maximise the asset value and ensure the equitable treatment of the creditors. The evidences present by the respondent demonstrate that the corporate debtor's prolonged financial incapacity and failure to fulfil its debt obligations despite multiple opportunities to restructure and repay. The NCLAT held that the financial creditor is entitled to seek relief under the Code where defaults are established and sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stantiated. Considering the importance of balancing creditor rights and debtor obligations within the insolvency framework the NCLAT held that there is no infirmity in the impugned order of Adjudicating Authority. The NCLAT dismissed the appeal. X X X X Extracts X X X X X X X X Extracts X X X X
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