Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2024 Supreme(Online)(NCLT) 4859

NATIONAL COMPANY LAW TRIBUNAL
Saji Kumar, Judicial Member, Sanjiv Dutt, Technical Member
Rec Limited – Appellant
Versus
Global Metal & Energy Private Limited – Respondent
CP (IB) No.956/MB/2023

Advocates:
For the Appellants/Petitioners: Siddharth Ranade, Nishi Bhankhari, Pushkar Deo, Ananya Bajpai
For the Respondents: Jatin Sehgal, Omkar Deosthale

An application under Section 7 of the Insolvency and Bankruptcy Code is not maintainable if the date of default falls within the Section 10A suspension period (25.03.2020 to 24.03.2021); the date of default cannot be shifted by subsequent recall notices to bypass this statutory bar.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Section 7 and 10A - Initiation of CIRP - Limitation - Whether the application is barred under Section 10A for default occurring between 25.03.2020 and 24.03.2021 - The statutory bar on filing applications for defaults during this period is absolute - Attempt by the Financial Creditor to shift the date of default to a notice date post the suspension period is rejected - The date of default is when the debt becomes due and payable and is not paid, not when notice is issued - Section 10A provides a permanent bar for defaults occurring within the prohibited window. (Paras 5.2, 5.3, 5.4, 5.5 and 5.6)

Facts of the case:
The Financial Creditor filed an application under Section 7 to initiate the Corporate Insolvency Resolution Process against the Corporate Debtor for an outstanding debt. The Financial Creditor admitted in Part-IV of the application that the default occurred on 31.12.2020. The Corporate Debtor argued that the application is barred by Section 10A of the Code as the default occurred during the COVID-19 pandemic suspension period.

Findings of Court:
The Adjudicating Authority observed that the date of default was explicitly mentioned as 31.12.2020 in the application, records of financial information, and correspondence, all of which fall within the Section 10A period. The Court held that the Financial Creditor cannot override the statutory bar by re-characterizing the date of default based on a loan recall notice issued after the suspension period.

Issues: Whether the application is maintainable given the date of default falls within the exclusionary period prescribed under Section 10A of the Code.

Ratio Decidendi: The date of default is determined by the actual failure to pay debt when due, not by the subsequent issuance of recall notices; therefore, defaults occurring between 25.03.2020 and 24.03.2021 are permanently immune from CIRP proceedings.

Result: Application dismissed.

ORDER

[PER: SANJIV DUTT, MEMBER (TECHNICAL)]

1. BACKGROUND

1.1 This is an Application bearing C.P. (IB) No.956/MB/2023 filed by REC Limited, the Financial Creditor, on 05.09.2023 under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “the Code”) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiating Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”) in respect of Global Metal & Energy Private Limited, the Corporate Debtor, which is, inter alia, engaged in the business of power generation in the State of Maharashtra.

1.2 The Financial Creditor provided rupee term loan facility of Rs.47.09 Crore (Forty-Seven Crore and Nine Lakh Rupees) to Corporate Debtor vide Loan Agreement dated 03.06.2015 for the purpose of setting up a 10 MW Wind Power Project at Washan, Taluka Jath, District Sangli, Maharashtra. However, the Corporate Debtor was unable to repay the loan and due to continuing defaults, the account of the Corporate Debtor was declared as Non-Performing Asset (NPA) on 30.09.2018. Thereafter, the Corporate Debtor made payments towards its dues and the account was standardiSed.

1.3 However, the Corporate Debtor again defaulted in repayment of loan on 31.12.2020 and its account was re-classified as NPA on 31.03.2021. Consequently, a loan recall notice dated 07.07.2021 was issued by the Financial Creditor recalling the loan. The Financial Creditor also issued various demand notices from January, 2021 to February, 2023 seeking repayment of the loan.

1.4 Thus, as on 10.08.2023, the total amount of debt outstanding is Rs.39,57,24,585/- (Thirty-Nine Crore Fifty-Seven Lakhs Twenty-Four Thousand Five Hundred and Eighty-Five Rupees) which is due and payable by the Corporate Debtor to the Financial Creditor. Since the Corporate Debtor has been unable to discharge its repayment obligations, the Financial Creditor is left with no alternative but to present the instant Application under Section 7 of the Code seeking initiation of CIRP in respect of the Corporate Debtor.

2. AVERMENTS OF THE FINANCIAL CREDITOR

2.1 The Financial Creditor approved rupee term loan amounting to Rs.47.09 crore vide Sanction Letter dated 24.02.2015. The Corporate Debtor vide its Board Resolution dated 20.05.2015 confirmed acceptance of the terms and conditions of the said loan.

2.2 Subsequently, Loan Agreement dated 03.06.2015 was executed between the Corporate Debtor and the Financial Creditor for the disbursement of the loan. It is submitted that in total, the Financial Creditor disbursed Rs.47,67,52,290/- (Forty-Seven Crore Sixty-Seven Lakh Fifty-Two Thousand Two Hundred and Ninety Rupees) to the Corporate Debtor as on 10.08.2023.

2.3 The account of the Corporate Debtor was classified as a non-performing asset (NPA) on 30.09.2018 due to defaults in repayment of the loan and a loan recall notice dated 12.10.2018 (Recall Notice 1) was issued by the Financial Creditor to the Corporate Debtor recalling the entire loan. Thereafter, the Corporate Debtor made payments towards the loan and its account was standardised. However, the Corporate Debtor defaulted again on 31.12.2020 and the loan account continued to be in default since then. Consequently, the loan account of the Corporate Debtor was reclassified as NPA on 31.03.2021 and a loan recall notice dated 07.07.2021 (Recall Notice 2) was issued.

2.4 Due to the continuing default, the Financial Creditor issued demand notices on 14.01.2021, 08.02.2021, 01.03.2021, 16.03.2021, 23.06.2021, 24.06.2021 and 09.02.2023. The Corporate Debtor acknowledged its debt through letters dated 07.07.2022, 27.03.2023, 31.05.2023, 16.06.2023 and 27.06.2023. In its letter dated 31.05.2023, the Corporate Debtor informed the Financial Creditor that it was clearing all outstanding amounts towards the loan vide Cheque No.275213 dated 17.06.2023 and requested the Financial Creditor to present the cheque on that date. Subseque

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2024 Supreme(Online)(NCLT) 4859

NATIONAL COMPANY LAW TRIBUNALSaji Kumar, Judicial Member, Sanjiv Dutt, Technical MemberRec Limited – AppellantVersusGlobal Metal & Energy Private Limited – RespondentCP (IB) No.956/MB/2023

An application under Section 7 of the Insolvency and Bankruptcy Code is not maintainable if the date of default falls within the Section 10A suspension period (25.03.2020 to 24.03.2021); the date of default cannot be shifted by subsequent recall notices to bypass this statutory bar.

Cases Referred (1)

NATIONAL COMPANY LAW TRIBUNAL
Saji Kumar, Judicial Member, Sanjiv Dutt, Technical Member
Rec Limited – Appellant
Versus
Global Metal & Energy Private Limited – Respondent
CP (IB) No.956/MB/2023