Interest Liability Shall Not Cease Merely Because Default Of Principal Amount Fell During S.10A Period: NCLT Mumbai

The National Company Law Tribunal (NCLT) Mumbai bench admitted a petition under section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) filed by Unity Small Finance Bank Limited against Bafna Motors Private Limited holding that defaults committed after section 10A period are sufficient to trigger Corporate Insolvency Resolution Process (CIRP). It further held that interest liability shall not come to an end merely on the ground that default of principal amount fell during 10A period. A Bench comprising Shri Nilesh Sharma (Judicial Member) and Shri Sameer Kakar (Technical Member) held that the debt exceeded the threshold limit, the default was established and the application was filed within the limitation period. Background: Unity Small Finance Bank Limited (Financial Creditor) extended credit facilities to the tune of Rs. 20 crore to Bafna Motors Private Limited (Corporate Debtor). The accounts of the corporate debtor were classified as Non Performing Assets (NPA) on 31.03.2021. Consequently, a demand under section 13(2) of the SARFAESI Act was issued. Despite partial payment from sale of mortgaged property, the debt to the tune of Rs. 19.83 remained unpaid.A fresh demand notice was issued in which the outstanding liability was claimed but the corporate debtor failed to discharge the debt. Thereafter, the financial creditor filed an application under section 7 of the IBC. Findings: The Tribunal while referring to an acknowledgment by which the limitation period stood extended under section 18 of the Limitation Act held that “from the first date of default i.e., 31.03.2021, limitation was to expire on 31.03.2024. However, there was an acknowledgment of debt vide letter dated 01.06.2022, hence, the Applicant gets three years' extension in limitation… The Application filed on 18.01.2025 is within limitation.” The Tribunal further noted that although part of the default fell within the section 10A period, continued defaults after the suspension period crossed the threshold limit under section 4 of the IBC. Relying on Bikram Bhadur, the Tribunal held that “Even if we exclude the default committed during the 10A period, the default post-31.03.2021 was sufficient to initiate proceedings under Section 7.” While agreeing with the view taken by the NCLAT in Vinod Kumar, the Tribunal held that “interest liability shall not come to an end merely on the ground that default of principal amount fell during 10A period. The Hon'ble NCLAT held this point in affirmation and concluded that the question as to what should be the amount of claim of the Financial Creditor is not to be determined at the time of admission of Section 7 Application and that is the subject matter of collation and verification by the RP in the CIRP.” Accordingly, the present petition was allowed. Case Title: Unity Small Finance Bank Limited Vs Bafna Motors Private Limited Case Number:C.P. (IB)/344(MB)2025 Order Date: 14/10/2025 Click Here To Read/Download The Order

Interest Liability Shall Not Cease Merely Because Default Of Principal Amount Fell During S.10A Period: NCLT Mumbai

Mohd Malik Chauhan

Tags