NCLAT Upholds Dismissal Of Section 7 Petition Filed By Hinduja Leyland Finance Ltd. During The Prohibited Period; Grants Liberty To Re-File With Corrected Documents
The National Company Law Appellate Tribunal ("NCLAT"), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Ms. Shreesha Merla (Technical Member) and Mr. Naresh Salecha (Technical Member), while adjudicating an appeal in Hinduja Leyland Finance Ltd. v Fly Express Logistic Pvt. Ltd., has upheld that Corporate Insolvency Resolution Process ("CIRP") cannot be initiated over...
The National Company Law Appellate Tribunal ("NCLAT"), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Ms. Shreesha Merla (Technical Member) and Mr. Naresh Salecha (Technical Member), while adjudicating an appeal in Hinduja Leyland Finance Ltd. v Fly Express Logistic Pvt. Ltd., has upheld that Corporate Insolvency Resolution Process ("CIRP") cannot be initiated over a default which had occurred in the period mentioned under Section 10A of the Insolvency and Bankruptcy Code, 2016 ("IBC"), i.e. between 25.03.2020 to 24.03.2021. The order was passed on 20.05.2022.
Section 10A was inserted in IBC in 2020 to discourage initiation of CIRP over defaults arising as a result of the COVID-19 pandemic.
Relevant Law
"Section 10A- Suspension of initiation of corporate insolvency resolution process. Notwithstanding anything contained in sections 7, 9 and 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf:
Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period.
Explanation. - For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any default committed under the said sections before 25th March, 2020."
The Section 10A was inserted in IBC by amendment Act No. 17 of 2020 and thereafter the Central Government had extended the period of exemption till March, 2021.
Background Facts
Hinduja Leyland Finance Ltd. ("Appellant") had filed a petition under Section 7 of the IBC bearing CP (IB) NO. 31/ALD/2022, before the NCLT Allahabad Bench ("Adjudicating Authority"), seeking initiation of CIRP against Fly Express Logistic Pvt. Ltd. ("Respondent"). The actual date of default was 19.03.2020. However, the Appellant had inadvertently mentioned the date of default as 24.12.2020 in the petition.
The Adjudicating Authority observed that the date of default mentioned in the petition, i.e. 24.12.2020, falls within the prohibited period mentioned in Section 10A of the IBC. Before the Appellant could file an amendment application to rectify the error in date of default, the Adjudicating Authority vide an order dated 05.04.2022 had dismissed the petition while observing that no CIRP could be initiated for default occurring in the prohibited period. However, liberty was granted to take recourse under any other law as may be available.
Appeal Before The NCLAT
The Appellant filed an appeal before the NCLAT against the order dated 05.04.2022, challenging the rejection of Section 7 petition over the incorrect date of default. The Applicant had submitted that in the Section 7 petition 'date of default' was wrongly mentioned as 24.12.2020 in place of 19.03.2020 and no amendment application could be filed since the Petition was dismissed on first day of hearing.
The NCLAT observed that since the petition mentioned 24.12.2020 as the date of default and no amendment was made, the Adjudicating Authority had not erred in rejecting the petition for being barred by Section 10A of the IBC. NCLAT dismissed the appeal filed by the Appellant and granted liberty to initiate fresh proceeding under Section 7 of IBC with the corrected documents, in accordance with law.
Case Title: Hinduja Leyland Finance Ltd. v Fly Express Logistic Pvt. Ltd., Company Appeal (AT) (Ins.) No. 553 of 2022.
Counsel for Appellant: Mr. Gulshan Kr. Sachdev, Advocate