NCLT Can Allow Date Of Default To Be Amended In CIRP Proceedings: NCLAT

The National Company Law Appellate Tribunal (NCLAT) bench of Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member) and Mr. Indevar Pandey (Technical Member) has held that the NCLT is empowered to allow the parties to amend the pleadings before the final orders in Corporate Insolvency Resolution Process (CIRP) proceedings are passed. In other words, the Tribunal has discretion to amend the default date after the CIRP petition is filed. The Tribunal also held that for the protection under section 10A of the Insolvency and Bankruptcy Code (IBC) to be applicable, there must be evidence of direct link between the 'default' and the 'COVID-19 impact'. Section 10A was introduced to provide relief to businesses affected by the economic impact of the COVID-19 pandemic by precluding CIRP proceedings for defaults occurring between 25.03.2020 and 25.03.2021. Since the default date i.e. 02.08.2019 predated the moratorium period, section 10A was held to be inapplicable. Brief Facts Barracks Retail India Pvt. Ltd. (Corporate Debtor), a garment manufacturing company, was incorporated on 25.01.2016. On 21.03.2017, Bharat Co-operative Bank (Mumbai) Limited sanctioned a term loan of Rs. 5 crores and a cash credit limit of Rs. 25 lakhs, secured by assets including 41 non-agricultural plots. In 2018, the Bank approved an additional loan of Rs. 1.91 crores to facilitate the acquisition of Eye Catch Fashions Pvt. Ltd..The bank arranged a transfer of Rs. 5.25 crore directly to Eye Catch's account to avoid NPA status. The Bank revised financial facilities for Corporate Debtor. On 01.09.2020, the Bank provided temporary relief under RBI guidelines, but the Corporate Debtor's account was declared NPA on 01.11.2019 due to unpaid interest/overdue principal. On 19.03.2021, The Bank issued a notice to recall the facilities under Section 13(2) of SARFAESI Act requiring the Corporate Debtor to pay all outstanding under all credit facility accounts within 60 days. The Bank assigned the Corporate Debtor's debt to ASREC (India) Limited (Respondent No. 1) on 25.03.2021. On 18.02.2023, ASREC filed a Section 7 application under the IBC, citing a default date of 31.10.2020. The date of default was amended to 02.08.2019. The Corporate Debtor had invoked Section 10A of the IBC for COVID-related exemptions. On 09.01.2024, the Adjudicating Authority admitted the CIRP application of Respondent-1, accepting the amended default date of 02.08.2019. The NCLT relied on the financial records, sanction letters, and debt assignment documents provided by ASREC to substantiate the grounds for default and validate the claim. The Appellant, Mr. Puneet P. Bhatia, a suspended director of Corporate Debtor challenged the Adjudicating Authority's decision to admit the CIRP. The Appellant contended that the NCLT disregarded evidence and objections, particularly the Section 10A exemption and conflicting default dates. Hence, the Appellant filed the appeal under Section 61 of the IBC for setting aside the impugned order dated 09.01.2024 passed by the NCLT. Issues a) Whether the Date of Default can be changed after filing the petition under Section 7 of the Code? b) Whether the date of default had been correctly identified. Submissions Appellant's Submissions The petition under section 7 of the IBC is not maintainable as the alleged default fell within the period protected under section 10A, which shields certain defaults occurring during the COVID-19 pandemic from CIRP proceedings. The initial default date of 31.10.2020 falls within the moratorium period under Section 10A, rendering the CIRP application invalid. In Plus Corporate Ventures Private Limited v. Transnational Growth Fund Limited, it was held that defaults within the Section 10A period cannot justify initiating CIRP.The date of default cited by the respondent arose post-17.03.2020, during the moratorium period, and therefore should be exempt from CIRP initiation as per Section 10A.The respondent unilaterally altered the date of default from 31.10.2020 to 02.08.2019 during the proceedings, intending to bypass the protections of the 10A period.In Pradeep Madhukar More v. Central Bank of India, it has been held that restructuring dates, once established, remain legally binding on both parties, and any subsequent change must follow due legal process.The failure to consider the recall notice dated 07.12.2020, which is critical evidence, has resulted in a legally untenable decision.The NCLT has disregarded the impact of the RBI's COVID-19 Regulatory Packages and Section 10A, which were designed to provide temporary relief to businesses facing unprecedented economic hardships due to the pandemic. Respondent's Submissions The default date was subsequently amended to 02.08.2019, predating the Section 10A period. Thus the CIRP application is...

NCLT Can Allow Date Of Default To Be Amended In CIRP Proceedings: NCLAT

Tazeen Ahmed

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