Recall Notice Issued During Cut-Off Period U/S 10A Of IBC Doesn't Alter Date Of Default If Default Occurred Before Cut-Off Period: NCLAT
The National Company Law Appellate Tribunal (NCLAT), New Delhi bench of Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member) and Mr. Indevar Pandey (Technical Member) has held that the issuance of a recall notice during the cut off period specified under Section 10A (i.e. from 25.03.2020 to 25.03.2021) does not defer the date of default if the default...
The National Company Law Appellate Tribunal (NCLAT), New Delhi bench of Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member) and Mr. Indevar Pandey (Technical Member) has held that the issuance of a recall notice during the cut off period specified under Section 10A (i.e. from 25.03.2020 to 25.03.2021) does not defer the date of default if the default occurred before 25.03.2020. The Tribunal noted that the recall notice issued during the cut off period was a procedural step that had no bearing on the initial default date because the default occurred well before the cut-off period. The Tribunal held that the application under section 7 of the Insolvency & Bankruptcy Code (IBC) was not hit by section 10A.
Brief Facts:
Svakarma Finance Pvt. Ltd. (Financial Creditor) sanctioned a working capital loan to Yours Ethnic Foods Pvt. Ltd. (Corporate Debtor). A loan agreement was executed on 25.07.2019. The loan was repayable monthly from 20.08.2019.
The Corporate Debtor defaulted on repayments from Jan 2020. Despite several opportunities and a recall notice dated 6.11.2020, the Corporate Debtor failed to pay the dues. The Financial Creditor filed an application under section 7 of IBC to initiate the Corporate Insolvency Resolution Process for the default. The NCLT admitted the section 7 application on 09.10.2023.
The Appellant, who is the Promotor/Director of Corporate Debtor, challenged the impugned order.
Observations:
The issue before the Tribunal was whether the recall notice dated 06.11.2020 by which 15 days were given to the Corporate Debtor to pay off the defaulted amount was to be considered to be the date of default as 21.11.2020 to hold that the application filed under section 7 was hit by section 10A of IBC.
The Tribunal observed that the Corporate Debtor cannot be permitted to take advantage of the fact that the Financial Creditor had issued a notice of recall which falls within the cut off period of Section 10A because the issuance of recall notice was on the occurrence of any of the events of default, which had already occurred in January. It was further observed that the default cannot be said to have occurred with the issuance of recall notice as the notice was a consequence of the occurrence of default and it was a procedural step for recalling of the entire loan amount.
The Tribunal noted that Section 10 A postulates that the CIRP cannot be initiated either under Section 7, 9 or 10 if the default occurs during the cut off period i.e. 25.03.2020 to 25.03.2021. The Tribunal held that Section 10A would not be applicable because the date of default occurred much before 25.03.2020.
The Tribunal dismissed the appeal.
Case Title: Sandip Narendrakumar Patel (Promotor/ExDirector) Yours Ethnic Foods Pvt. Ltd. vs. Svakarma Finance Pvt. Ltd. & Anr.
Case Number: Comp. App. (AT) (Ins) No. 1419 of 2023
For Appellants: Mr. Atul Sharma, Kuldeep, Shivanshu Kumar, Adv.
For Respondent: Mr. Himanshu Chaubey, Saumitra Chaturvedi, Adv.; Mr. Anoop Prakash Awasthi, Parthvi Ahuja, Prapti Singh, Adv. R2
Date of Order: 05.11.2024