NCLAT New Delhi: Date Of Default As Per One Time Restructure Agreement Shall Be Date Of Default
The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, New Delhi comprising of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member), dismissed an appeal filed in Pradeep Madhukar More vs. Central Bank of India. The appeal was filed against the Mumbai National Company Law Appellate Tribunal’s (‘NCLT’) order dated 09.06.2023 which admitted...
The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, New Delhi comprising of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member), dismissed an appeal filed in Pradeep Madhukar More vs. Central Bank of India. The appeal was filed against the Mumbai National Company Law Appellate Tribunal’s (‘NCLT’) order dated 09.06.2023 which admitted the Corporate Insolvency Resolution Process (‘CIRP’) application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (‘Code’) against Syntex Trading & Agency Pvt. Ltd. (‘Corporate Debtor’).
The Appellate Tribunal held that if the Bank has entered into One Time Restructuring (‘OTR’) Agreement with the Corporate Debtor, the date of default for the purpose of Section 10A of the Code will be the date of default in the OTR proposal and not the original/Non-Performing Asset (‘NPA’) date of default.
Background Facts:
The Corporate Debtor committed default on the three three-term loans on 30.09.2020 and the Corporate Debtor was ascertained as a Non-Performing Asset (‘NPA’) on 29.12.2020.
As per the Regulation Framework for Covid-19 dated 06.08.2020, OTR Proposal was requested by the Corporate Debtor and the same was sanctioned on date 21.05.2021 by the Central Bank of India by executing OTR. As per the OTR, the Corporate Debtor was granted an ‘interest moratorium’ of 16 months in respect of loans between 01.11.2020 to 28.02.2020, and with regard to ‘principal moratorium’ the period of 18 months was granted.
The Corporate Debtor defaulted under the OTR Agreement in making the payment of principal and interest amount on 31.03.2022. On 04.05.2022, the Central Bank of India sent a default notice calling the Corporate Debtor to make payment towards the outstanding dues. An Application under Section 7 of the Code was filed by the Central Bank of India claiming a total due of Rs. 420,13,90,040. The NCLT Mumbai Bench had admitted the CIRP application against the Corporate Debtor and held that the petition is not barred by Section 10A.
NCLAT Verdict:
The NCLAT dismissed the appeal and held that if the Bank has entered into One Time Restructuring (‘OTR’) Agreement with the Corporate Debtor, the date of default for the purpose of Section 10A of the Code will be the date of default in the OTR proposal and not the original/Non-Performing Asset (‘NPA’) date of default.
It observed that Section 10A of the Code was inserted to prevent corporate persons experiencing distress from being pushed into insolvency proceedings under the Code for some time, Section 10A makes it clear that the initiation of CIRP under Sections 7,9 and 10 of the Code is prohibited for any default occurred during the Section 10A period. Moreover, Clause 48 of the RBI Circular is only to be read with regard to downgrading to NPA for the relevant date and is not relevant to find out the event of default, which occurred under the OTR Agreement and is the foundation of the CIRP Application.
The Tribunal outlined that as per Clause H of the OTR Agreement, restructuring was granted to the outstanding original loans. The CIRP application was filed on the basis of default on 31.03.2022 as per Clause 8.1 of the OTR Agreement. Further, the date of NPA is 29.12.2020 as per Clause 48 of the RBI Circular dated 06.08.2020. Therefore, the default does not fall under the Section 10A period.
In conclusion, NCLAT held that the Central Bank of India had the appropriate right to file CIRP under Section 7 of the Code as it was not related to any default committed during the Section 10A period. Instead, it was filed for a default that occurred on 31.03.2022 under the OTR Agreement dated 21.05.2021.
Case Title: Pradeep Madhukar More vs. Central Bank of India
Case No.: Company Appeal (AT) (Insolvency) No.837 of 2023
Counsel for Appellant: Mr. Ritin Rai, Sr. Advocate with Ms. Pallavi Pratap, Mr. Mridul Yadav, Ms. Muskan Jain, Ms. Ritika Sinha, and Mr. Aman Shukla, Advocates.
Counsel for Respondent: Mr. Manoj Swarup, Sr. Advocate with Mr. Tushar Singh, Ms. Akshra Akshi, Mr. Neelmani Pant, and Mr. Nikhil Sabri, Advocates.