The court clarified that amendments to default dates in insolvency proceedings are permissible and that defaults predating COVID-19 moratorium are actionable under the Insolvency and Bankruptcy Code.

JUDGMENT

(9th December, 2024)

INDEVAR PANDEY, MEMBER (T)

This appeal arises from an order dated 09.01.2024 by the National Company Law Tribunal (NCLT), Mumbai Bench-I, (Adjudicating Authority) in Company Petition (IB)/280(MB)2023. The Appellant, Mr. Puneet P. Bhatia, a suspended director of Barracks Retail India Pvt. Ltd., the Corporate Debtor (in short “CD”), has challenged the Adjudicating Authority’s (in short “AA”) decision to admit an application for Corporate Insolvency Resolution Process (CIRP) initiated by ASREC (India) Limited, Respondent No. 1/ Financial Creditor 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 non- agricultural 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, the Bank reviewed the existing loans, renewing them and, on 14.08.2018, approving an additional loan of Rs.1.91 crore to facilitate Barracks Retail’s acquisition of Eye Catch Fashions Pvt. Ltd., a financially distressed garment company. The Bank advised the CD to invest 25% of Eye Catch’s asset value to prevent an NPA classification. The bank arranged a transfer of Rs. 5.25 crore directly to Eye Catch from Barracks Retail’s account to avoid NPA status. Subsequently, another Rs. 2.5 crore was transferred based on a verbal understanding and an unregistered sale deed, yet Eye Catch’s promoters abandoned the business, leaving the CD liable for the Rs. 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:

FITL of existing 74.65 term loan WCTL-3 19.97 FITL of WCTL-3 2.13 (iv) With the onset of COVID-19, as per RBI Guidelines the Bharat Co-operative 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