Fresh Application U/S 7 Of IBC Can Be Filed Upon Default Under Restructured Terms: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Barun Mitra (Technical Member) and Mr. Arun Baroka (Technical Member) has held that section 10A of the Insolvency and Bankruptcy Code, 2016 (IBC) does not prohibit parties from entering into an arrangement to restructure their debts during or after the section 10A period. If a restructuring agreement is executed between the parties, a fresh application under section 7 of the IBC can be filed upon default under the restructured terms. A Guarantee Agreement was executed by the corporate debtor in favor of the Financial Creditor. After the default, the Non Convertible Debentures were classified as Non- Performing Assets during section 10A period. Subsequently, ECL finance assigned its rights to CFM ARC on 14.08.2020. Thereafter, the principal borrower and the corporate debtor were called upon to repay the debt during the section 10A period. Respondent No. in the capacity of the Debenture Trustee filed an application under section 7 of the IBC seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against the principal borrower. However the application was admitted against the corporate debtor, not the principal borrower. The above order has been challenged in the present appeal. The Appellant submitted that the liability to pay by the guarantor arises only when a demand is made on the Guarantor. In the present case, the demand to pay was first made to the Corporate Guarantor on 16.06.2020/16.09.2020. Since the default notice fell within the Section 10A period, the Section 7 application stood barred under Section 10A. It was further submitted that any subsequent restructuring/OTS cannot alter the crystallised date of default. Once a guarantee is invoked, it cannot be repeatedly invoked to create a new cause of action. Per contra, the Respondent submitted that the Corporate guarantee executed by the Corporate Debtor was a continuing guarantee in terms of the Guarantee Deed which stood reaffirmed by the Restructure Letter on 27.12.2022. It was further submitted that in the present case since the Appellant has expressly admitted debt and default and the guarantee was continuing as can be deciphered from the terms of the Guarantee Deed, the date of default was not covered by the Section 10A period. The Tribunal observed that the Adjudicating Authority after perusing the contractual terms rightly held that the cause of action could arise either from default of the restructured terms or termination of the Restructuring Agreement. In the present case, the termination of the Agreement was not automatic. It was the discretion of the Financial Creditor to terminate the Agreement upon default. It held that since the restructured terms specified independent events of default which admittedly occurred in the present case, the Financial Creditor was justified in filing a fresh application under section 7 of the IBC with a revised debt amount and a fresh date of default. Therefore the Adjudicating Authority did not commit any error in holding that the invocation of guarantee emerged directly from default under the restructured terms. While agreeing with the findings of the Adjudicating Authority, it held that section 10A of the IBC does not prohibit parties from entering into an arrangement to restructure their debts during or after the section 10A period. This provision was brought in to give reliefs to the corporate debtor, not to prevent the parties from restructuring their debts. In the present case, since the default occurred well beyond the section 10A period and within the permissible limit of the section 7 of the IBC, the Adjudicating Authority was right in admitting the application under section 7 of the IBC. Accordingly, the present appeal was dismissed. Case Title:GANGADHAR A. Versus CATALYST TRUSTEESHIP LTD AND ORS. Case Number:Company Appeal (AT) (Insolvency) No. 698 of 2025 Judgment Date: 09/07/2025 For Appellant : Mr. Krishnendu Dutta, Sr. Advocate with Mr. Shashank Patnaik, Mr. Karan Grover and Mr. Yash Tandon, Advocates. For Respondent : Mr. Abhijeet Sinha, Sr. Advocate with Mr. Pranay Chitale and Ms. Smiti Verma, Advocates for R-1. Mr. Ayush J. Rajani, Advocate for R-2/RP. Click Here To Read/Download The Order

Fresh Application U/S 7 Of IBC Can Be Filed Upon Default Under Restructured Terms: NCLAT

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Fresh Application U/S 7 Of IBC Can Be Filed Upon Default Under Restructured Terms: NCLAT

Mohd Malik Chauhan

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