Date Of Default Occurring Within Prohibited Period U/S 10A Of IBC Can't Be Shifted By Sending Notice After Prohibited Period For Same Debt: NCLT Mumbai

The National Company Law Tribunal, Mumbai Bench of Hon'ble Shri K. R. Saji kumar, (Judicial Member) Hon'ble Shri Sanjiv Dutt, (Technical Member) held that the date of default occurring within the prohibited period cannot be shifted merely because a notice for payment is issued again after the end of such prohibited period.

Brief Facts

REC Limited, financial creditor, filed a petition under section 7 of the IBC against Global Metal & Energy Private Limited, the corporate debtor. The petition was filed for claiming an amount to the tune of Rs. 47.09 crore. The amount was advanced to the corporate debtor in 2015 for setting up a 10 MW wind power project. Thereafter, account of the corporate debtor was classified as Non-Performing Assets (NPAs) in 2018 which was later regularised. When the corporate debtor defaulted, the account was again classified as NPAs on March 31, 2021. The financial creditor sent multiple demand notice but no response was given by the corporate debtor despite the debt being acknowledged.

The corporate debtor opposed the petition on the ground that default period falls under section 10A period for which no CIRP can be initiated. The financial creditor contended that although the first default occurred during the protected period but default continued to occur even after the protected period. It was further contended that a subsequent demand notice was sent on July 7, 2021 which set a new default date of July 14, 2021 which is beyond the suspension period. Based on this, it was submitted that the default beyond suspension period is sufficient to initiate CIRP.

NCLT's Analysis

The NCLT rejected the arguments of the petitioner and observed that application under section 7 of the IBC cannot be maintained for the default period falling under section 10A of the IBC. The tribunal further observed that the present application is clearly barred by section 10A as default occurred during the suspension period.

The tribunal further observed that although retrospective bar does not extinguish the debt or right of creditors to recover the amount but CIRP cannot be initiated for the default during this period. The tribunal referred to the Supreme Court judgment in Ramesh Kymal Vs. Siemens Gamesa Renewable Power Private Limited [(2021) wherein it was held that the intent of the legislature was to bar the institution of any application for commencement of CIRP in respect of a default which occurred between 25.03.2020 and 24.03.2021.

The tribunal further noted that default date which fell in the suspension period cannot be shifted merely by sending a legal notice for the prohibited debt after the suspension period.

The tribunal further noted that the account of the corporate debtor was first classified as NPAs on March 31, 2021 and the default occurred on December 31, 2020. Therefore, the default clearly comes within the prohibited period for which no CIRP can be initiated.

The tribunal concluded that since the default for the debt sought in the present application occurred during the prohibited period under section 10A, present application cannot be maintained.

Accordingly, the present application under section 7 of the IBC was not maintainable and dismissed.

Case Title: - REC LIMITED v. GLOBAL METAL & ENERGY PRIVATE LIMITED

Case Reference: CP (IB) No.956/MB/2023

Court: NCLT, Mumbai

Judgment Date: 15/10/2024

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