Declaration Of Loan Account/ Debt As NPA Can Be Considered As Date Of Default To File Petition U/S 7 Of IBC: NCLAT

Facts

The Corporate Debtor, M/s. I World Business Solutions Pvt. Ltd took credit facilities from the erstwhile Andhra Bank which is now known as Union Bank of India. Credit facilities contained cash credit, bank guarantees and emergency credit lines at the time of Pandemic. The debt was restructured and renewed several times. But the corporate debtor failed to discharge its obligations. On March 31, 2021, the account of the corporate debtor was classified as Non-Performing Assets(NPAs).

Thereafter, the Union Bank of India issued a notice under section 13(2) of the SARFAESI Act and also filed a petition under section 7 of the code. In response, the corporate debtor argued that the debt for which the petition was filed fell under the prohibited period under section 10A for which petition cannot be entertained. However, the petition was admitted by the AA on the ground that date of default was March 31, 2021. Hence, the present appeal.

It is the contention of the appellant that the sanction of Funded Interest Term Loan of Rs. 3,21,63,256/- on 16.09.2020 was during 10A period and any default in the aforesaid facility cannot be a ground to initiate any application under Section 7.

It also contended that on 25.03.2021, when sanction letter was issued by the Bank there can be no default on the part of the borrower. Issue of sanction letter on 25.03.2021 fully proves that there was no default on 25.03.2021 and there was no occasion to declare the account NPA on 31.03.2021. Date of default, if any, was during Section 10A period and application was clearly barred by Section 10A.

In response, it is the case of the respondent that maximum period to repay the amount under FITL facility was 31.03.2021. The Sanction letter dated 25.03.2021 would come into effect only if the FITL was zero as on 31.03.2021. Sanction letter dated 25.03.2021 was never given effect to.

It also argued that as per RBI Guidelines, the account is classified as NPA not account wise but borrower wise, hence, on account of continuous default on any one account, the account would be classified as NPA. NPA declaration as on 31.03.2021 was in accordance with the RBI guidelines.

It further contended that the account was overdue as on 01.03.2020 and after declaration of the account as NPA, there was continuous default subsequent to Section 10A period. There being default by the Corporate Debtor prior to 01.03.2020 and also subsequent to 10A period, there is no error committed by the Adjudicating Authority in admitting Section 7 application.

Observations:

The tribunal observed that even prior to Section 10A period, there is clear acknowledgment by the corporate debtor that there is outstanding amount. During 10A period, two facilities were extended first on 16.09.2020 funded interest term loan (FITL) of Rs.3,21,63,265/- which was repayable by 6th monthly instalment commencing from September 2020. No moratorium was provided and interest to be serviced as and when debited.

In the additional affidavit which was filed by the bank before the Adjudicating Authority, statements of account of the Corporate Debtor have been brought on record which indicate that amount of more than Rs.1 Crore was due as on 31.03.2021.

“In Laxmi Pat Surana vs. Union Bank of India & Anr.- (2021) Hon'ble Supreme Court has held that ordinarily, upon declaration of the loan account/ debt as NPA that date can be reckoned as the date of default to enable the Financial Creditor to initiate action under Section 7 of the Code” the tribunal observed.

The tribunal further added that there can be no dispute to the proposition that no application can be filed under Section 7 for a default which has been committed by a borrower during 10A period.

It added that “even if we exclude the default committed by CD during 10A period, defaul on 31.03.2021 which is taken as date of default in Section 7 application was more than threshold amount of Rs.1 Crore which was sufficient to initiate proceedings under Section 7 against the borrower.”

The tribunal opined that default by the borrower was even before the 10A period which is clear from acknowledgment letter dated 30.08.2019, as extracted above. Section 7 application was filed on 24.09.2022 and the amount of interest calculated from 31.03.2021 till the date of filing of the application also even if principal amount is not included was much more than the threshold amount for initiating CIRP against the corporate debtor.

The tribunal also noted that facts of the present case clearly indicate that the borrower is liable to undergo insolvency resolution process and the application under Section 7 filed by the Bank cannot be thrown out on the bar of Section 10A. There being default prior to Section 10A period and subsequent to 10A period, as noted above, order of the Adjudicating Authority admitting Section 7 application need no interference.

Finally, the tribunal observed that it is well settled that at the time of admission of Section 7 application, Adjudicating Authority is not called upon to determine the amount of claim of the Financial Creditor who initiated Section 7 application, and those issues are to be left for Resolution Professional to be determined at the time of collation and admission of the claim. Accordingly, the present appeal was dismissed.

Case Title: Bikram Bhadur Vs. Union Bank of India & Anr.

Case Number: Company Appeal (AT) (Insolvency) No. 1289 of 2024

Judgment Date: 05/12/2024