Prohibition On Filing Applications Under Sections 7, 8, And 10 Remains Effective Even After Section 10A Period Has Expired: NCLAT Principal Bench

Further, the bench held this prohibition remains effective even after the period covered by Section 10A has expired, meaning that no applications can be filed for defaults that occurred during this period.

Section 10A prohibits the filing of applications for the initiation of corporate insolvency resolution process (CIRP) under Sections 7, 9, and 10 of the IBC for any default arising on or after March 25, 2020.

Brief Facts:

The matter pertained to an Appeal which arose from an order where the Appellant's, Office Beanz Pvt. Ltd, application under Section 10 was dismissed due to the bar imposed by Section 10A. The Appellant had filed the application but it was rejected on the grounds that Section 10A precluded the filing of such applications during the continuance of the bar. The Appellant, aggrieved by the dismissal, challenged the order and argued that the interpretation of Section 10A was incorrect.

The Appellant submitted that Section 10A merely prohibited the filing of applications during the period of the bar, but the debt itself remained intact. It contended that once the bar under Section 10A expired, the application could still be filed. In support of this argument, the Appellant relied on the judgment of the Supreme Court in Ramesh Kymal vs. Siemens Gamesa Renewable Power Private Limited (2021) 3 SCC 224 and argued that the judgment clarified the scope of Section 10A and supported the contention that the application could be filed once the bar was no longer in effect.

The Respondent, however, maintained that the application was rightly dismissed as barred by Section 10A and argued that the prohibition against filing during the bar was absolute, without any provision for revival or filing after the expiration of the bar.

Observations by the NCLAT:

The NCLAT referred to Section 10A of the IBC:

“[10A. Notwithstanding anything contained in sections 7, 9 and 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf: Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period.]”

The NCLAT noted that the Supreme Court in Ramesh Kymal held that the interpretation of Section 10A should consider not only the literal language of the provision but also the broader context and objectives of the ordinance. The Supreme Court noted that the retrospective bar on applications does not extinguish the debt but prevents the initiation of corporate insolvency resolution processes for defaults occurring during the specified period. It noted that the legislative intent behind Section 10A was to provide relief to corporate debtors affected by the COVID-19 pandemic and held that initiating insolvency proceedings during such extraordinary circumstances could undermine the IBC's purpose.

The Supreme Court held that Section 10A does not require an examination of the financial impact of the pandemic on each debtor. Instead, it reflects a broad legislative measure to address widespread economic distress.

The NCLAT concurred with the Supreme Court's interpretation and noted that Section 10A unequivocally bars the filing of applications for defaults arising during the covered period. The NCLAT held that allowing applications for defaults occurring within the Section 10A period after its expiration would contravene the provision's purpose and object. It noted that the purpose of Section 10A is to provide relief to corporate debtors during the pandemic, and any interpretation that would undermine this relief would be contrary to the legislative intent.

The bench held:

The language of the statute provides that no application for initiation of Corporate Insolvency Resolution Process of a Corporate Debtor shall be filed for any default arising on or after 25.03.2020. The provision cannot be read to mean that after the period is over the application can be filed. If such interpretation is accepted, the whole purpose and object shall be defeated. The purpose and object of introduction of Section 10A was to give relief to the Corporate Debtor who committed default during the period which is covered by Section 10A. The debt is not wiped out is only for the purpose that other proceedings are not prohibited, but Sections 7, 8 and 10 applications are clearly barred. No application can be filed, even after expiry of the period under Section 10A for the default which occurred during the 10A period.”

Therefore, the NCLAT held that the interpretation proposed by the Appellant, based on the Supreme Court's judgment, was flawed. The appeal was dismissed.

Case Title: Office Beanz Pvt. Ltd. vs ------

Case Number: Company Appeal (AT) (Insolvency) No. 1725 of 2024 & I.A. No. 6238, 6305 of 2024

For Appellant : Mr. M. Datta, Mr. Aditya Guha and Mr. Anand Kumar Soni,

Advocates For Respondent : None

Date of Judgment: 09.09.2024

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