The Tribunal ruled that ongoing defaults post-Section 10A suspension justify the initiation of insolvency proceedings, allowing each missed installment to be treated as a fresh default.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Section 61(1) and Section 10A - Appeal against dismissal of company petition for insolvency - The Appellant, SIDBI, sought to initiate Corporate Insolvency Resolution Process (CIRP) against the Respondent, Sambandh Finserve Private Limited, due to defaults in loan repayments. The Adjudicating Authority dismissed the petition on grounds of maintainability, citing a previous dismissal under Section 10A. The Tribunal found that the Respondent's ongoing defaults post-10A period justified the initiation of CIRP. (Paras 1, 16, 30)

(B) Legal Principles - The Tribunal emphasized that each missed installment constitutes a fresh default, allowing for the initiation of insolvency proceedings despite prior dismissals. The intent of Section 10A is to bar applications for defaults occurring during its suspension period, but does not extinguish the debt. (Paras 10, 29)

(C) Findings of Court - The Tribunal ruled that the Appellant's fresh application was maintainable as it reflected defaults occurring after the suspension period, thus justifying the initiation of CIRP. (Paras 30)

(D) Issues - The main issues included whether the dismissal of a previous petition barred the current application and the validity of changing the date of default. (Paras 16, 24) (E) Ratio Decidendi - The Tribunal held that the dismissal of the previous petition does not preclude the filing of a fresh application for ongoing defaults, reaffirming that each default can be treated as a separate cause of action. (Paras 29) (F) Result - The appeal is allowed, and the Impugned Order is set aside, with directions to initiate CIRP proceedings. (Paras 30) (G) Parties involved - Appellant: Small Industries Development Bank of India; Respondent: Sambandh Finserve Private Limited.

JUDGEMENT

(Hybrid Mode) [Per: Arun Baroka, Member (Technical)]

The present Appeal is being preferred under Section 61(1) of the Insolvency and Bankruptcy Code, 2016 ("IBC") against the Impugned Order dated 08.05.2023 passed by the Learned Adjudicating Authority, National Company Law Tribunal (NCLT), Cuttack Bench in Company Petition (IB) No. 27/CB/2023.

2. The Appellant - Small Industries Development Bank of India (SIDBI)- established on 02.04.1990 under an Act of the Indian Parliament, serves as the Principal Financial Institution for the Promotion, Financing, and Development of the Micro, Small, and Medium Enterprise (MSME) sector. It is also responsible for coordinating the functions of similar institutions.

3. The Respondent Company- Sambandh Finserve Private Limited- incorporated on 03.07.1996 under the Companies Act 1956, is a private entity registered with the ROC Cuttack. Initially an NBFC, its license was canceled by the Reserve Bank of India, and an Administrator has been appointed to oversee its operations.

4. Despite repeated opportunities the Respondent did not file any reply. Heard Counsel of the Appellant and also perused the documents on record including the reply of the Respondent before the AA.

5. At the request of the Respondent, the Appellant sanctioned two Term Loans of Rs. 20 Crores and Rs. 30 Crores via Letters of Intent dated 21.02.2019 and 23.10.2019, respectively. The Respondent’s Board of Directors passed resolutions on 22.02.2019 and 23.10.2019, accepting the terms and conditions of these loans.

6. Subsequent to the Board Resolutions, Loan Agreements were executed on 26.02.2019 and 25.10.2019 for the respective loan amounts. These agreements incorporated the terms and conditions outlined in the Letters of Intent and the Appellant's General Conditions.

7. The parties executed Deeds of Hypothecation on 26.02.2019 and 25.10.2019, where the Respondent Company hypothecated all its book debts, revenues, receivables, and claims as security for the loans. The charge was successfully created and registered with the Registrar of Companies, Cuttack.

8. The Appellant disbursed Rs. 20 Crores on 28.02.2019 and Rs. 30 Crores in two tranches of Rs. 15 Crores each on 14.11.2019 and 17.01.2020, in accordance with the Letters of Intent and Loan Agreements.

9. The Respondent was obligated to repay the full principal amount within 36 months from the date of disbursement, with installments due on the 10th of each month. The Respondent defaulted on these payments post-November 2020, and the account was classified as NPA on 15.12.2020. As of 05.09.2022, Rs. 35,65,60,488/- was outstanding.

10. Due to financial indiscipline, the Reserve Bank of India canceled the Respondent’s NBFC license, and an Administrator was appointed on 04.11.2020 to oversee operations. 11. The account of the Respondent was classified as NPA on 15.12.2020, which is an admitted position by the Appellant.

12. The Respondent continued to default on payments throughout 2021. Consequently, the Appellant filed an Application under Section 7 of the IBC on 14.09.2022, bearing Company Petition (IB) No. 42/CB/2022. Respondent, through Mr. Anandi Charan Sahu, appointed Administrator of the Respondent Company categorically admitted that the Respondent had borrowed funds from the Appellant and that the Respondent had defaulted in payment of the instalments of the loan after September 2020.

Initial Dismissal of Application by the AA:

13. The Order was pronounced by the Adjudicating Authority, on 22.11.2022, whereby it was rejected on the ground that the Application was hit by Section 10A of the IB Code basis the default date being 15.12.2020. Appeal before NCLAT:

14. The Appellant filed Appeal before this Tribunal bearing Company Appeal (AT) (Insolvency) no. 28 of 2023 against the Order passed by Adjudicating Authority dated 22.11.2022 in CP IB No. 42/CB/2022, on the ground that the Company Petition was erroneously dismissed by the Ld. Adjudicating Authority because of bar under

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2024 Supreme(Online)(NCLAT) 144

NATIONAL COMPANY LAW APPELLATE TRIBUNALHon'ble Justice Yogesh Khanna (Member(Judicial)) , Hon'ble Mr. Arun Baroka (Member (Technical)) ,SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI) – AppellantVersusSAMBANDH FINSERVE PRIVATE LIMITED – Respondent784/ND/2023 COMPANY APPEAL(AT)(INS)

The Tribunal ruled that ongoing defaults post-Section 10A suspension justify the initiation of insolvency proceedings, allowing each missed installment to be treated as a fresh default.

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Hon'ble Justice Yogesh Khanna (Member(Judicial)) , Hon'ble Mr. Arun Baroka (Member (Technical)) ,
SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI) – Appellant
Versus
SAMBANDH FINSERVE PRIVATE LIMITED – Respondent
784/ND/2023 COMPANY APPEAL(AT)(INS)