Petition U/S 7 Of IBC Can Be Entertained For Default On Interest Component Of Loan If It Occurs After Section 10A Period: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member) and Mr. Barun Mitra (Technical Member) has held that an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (the Code), can be entertained based on the default in the interest component committed after the prohibited period under Section 10A of the Code, provided that the threshold limit of Rs. 1 crore under Section 4 of the Code is met. Brief Facts: Indusland Bank sanctioned a Term Loan Facility of Rs.300 crores for financing the development of an IT-SEZ Project at Golf Course Extension Road, Gurgaon, Haryana to G.P. Realtors Pvt. Ltd. (Corporate Debtor) in the year 2016. As per the Sanction Letter, the repayment of the loan was to be made in one-shot bullet payment of Rs.300 crores at the end of 48 months. The interest was payable as per the negotiated rates. Default interest rate was provided as 18.75% per annum. On 01.06.2021, Demand Notice was issued by erstwhile Financial Creditor, demanding payment of Rs.272,66,31,168/- as principal amount and an amount of Rs.15,40,73,336/- towards additional interest as on 31.05.2021. On 03.09.2021, Demand Notice under Section 13(2) of the SARFAESI Act, 2002 was issued. On 09.06.2021, a Section 7 application was filed before National Company Law Tribunal (NCLT) Chandigarh Bench,stating a default of Rs. 282.04 Cr (principal) and Rs. 9.38 Cr (interest from 26.03.2021 to 31.05.2021). The Adjudicating Authority, by order dated 20.11.2024, admitted the petition, holding that the interest default alone exceeded the ₹ Rs. 1 crore threshold as provided under section 4 of the Code. Against the above order, the present appeal has been filed. Contentions: The Appellant submitted that when default of entire loan account fell on 11.02.2021, no default regarding interest can be considered, interest being clearly related to principal loan amount. The interest component on account of non payment is not separately identifiable as a default of its own. Per contra, the Respondent submitted that the interest defaults after the expiry of the suspension period under Section 10A are independent and can be severed from default in principal. It was further contended that the Appellant's assertion that there can only be one date of default and there can be no separate and distinct date of default for interest is contrary to the settled law. Each default in repayment of principal or interest, constitutes a separate event of default. Observations: The Tribunal noted that there is no dispute between the parties that period of 48 months after extension came to an end on 11.02.2021. Thus, the date for repayment of Rs.300 crores fell on 11.02.2021, which admittedly is a date, which falls within 10A period. The Tribunal further said that it is true that in the present case, the principal loan amount was payable in one installment after 48 months, which defaulted on 11.02.2021. Section 10A prohibits initiating any application for defaults committed during the 10A period. However, if the Corporate Debtor defaults after the end of the 10A period, such default can form the basis of a Section 7 application. The NCLAT in Office Beanz Pvt. Ltd. held that section 10A of the Code cannot be read to mean that the application can be filed after the period is over. Accepting such an interpretation would defeat the very purpose and object of Section 10A, which was introduced to provide relief to Corporate Debtors for defaults committed during the 10A period. The Appellate Tribunal in the above case further held that while the debt is not wiped out to allow for other proceedings, applications under Sections 7, 8, and 10 are clearly barred. No application can be filed, even after the expiry of the 10A period, for defaults that occurred during the 10A period. The NCLAT in Harish Raghavji Patel vs. Clearwater Capital Partners Singapore Fund IV Private Limited (2023) held that after the end of 10A period, there was a clear default in payment of interest, which was more than Rs.1 crore therefore section 7 of the Code cannot be rejected. Based on the above, it held that in the present case, the Adjudicating Authority found that the default amount from 26.03.2021 to 31.05.2021 was Rs. 9,38,44,668/-. The interest liability does not cease merely because the principal default occurred during the 10A period. It further added that interest remains payable on the outstanding loan as per the Facility Agreement, and the prohibition under Section 10A of the Code does not wipe out liability. If the outstanding continues post-10A period, the interest liability also continues. The Tribunal concluded that the Adjudicating Authority found that the Section 7 Application was entertainable based on the default of interest occurring after the 10A period, i.e., from 26.03.2021 to...

Petition U/S 7 Of IBC Can Be Entertained For Default On Interest Component Of Loan If It Occurs After Section 10A Period: NCLAT

Mohd Malik Chauhan

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