Post Occurrence Of Default, Parties Entered Into MoU And Re-Scheduled Payments: NCLT Hyderabad Declines To Initiate CIRP

The National Company Law Tribunal (“NCLT”), Hyderabad Bench, comprising of Dr. Venkata Ramakrishna Badarinath Nandula (Judicial Member) and Shri Charan Singh (Technical Member), while adjudicating a petition filed in M/s Tata International Limited v M/s Trident Sugars Ltd., has rejected a petition filed under Section 9 of IBC based upon a default post which the Parties entered into a Memorandum of Understanding (MoU) and re-scheduled the payments. The Bench observed that the Section 9 petition did not disclose any default which occurred post execution of the MoU. Hence, no CIRP can be initiated upon a default which has ceased to exist in view of subsequent payment re-scheduling by the Parties. Background Facts In 2019, M/s. Trident Sugars Limited (“Corporate Debtor”) and M/s Tata International Limited (“Operational Creditor”) entered into a Trade Agreement for supply of sugar. The Corporate Debtor allegedly failed to supply sugar as per agreed terms. On 15.11.2021, the Operational Creditor sent a Demand Notice under Section 8 of the Insolvency & Bankruptcy Code, 2016 (“IBC”) to the Corporate Debtor, claiming the outstanding amount of Rs.21,67,10,677/-, due as on 31.03.2021. Subsequently, a Memorandum of Understanding (MoU) dated 18.02.2022 was entered between the Parties whereby a fresh repayment schedule was agreed upon. On 16.07.2022, the Operational Creditor filed a petition under Section 9 of IBC, seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor, over a default of Rs.21,67,10,677/- which occurred prior to execution of MoU. In the petition, the date of default was stated as 31.03.2020. The Corporate Debtor contended that Demand Notice was not served upon it since its office was closed due to Covid-19 pandemic. Even the notice by way of mail was not received. NCLT Verdict The issue before the Bench was whether the Demand Notice dated 15.11.2021 is enforceable in law. While determining the maintainability of the Petition, the Bench observed that it is trite law that service of Demand Notice in the manner prescribed under IBC is a sine qua non for initiation of CIRP by an Operational Creditor. As per the Explanation in Section 8 of IBC, a “demand notice” means a notice served by an Operational Creditor to the Corporate Debtor demanding payment of the operational debt in respect of which the default has occurred. It was observed that the date of default is stated as 31.03.2020, whereas, an MoU has been executed between the Parties on 18.02.2022 whereby the payment of dues under the Trade Agreement has been re-scheduled. The Bench noted that the Section 9 petition does not mention that any default took place post execution of the MoU. Therefore, the Section 9 petition is an abuse of IBC and violative of Section 9(5)(ii)(c) of IBC. Section 9(5)(ii)(c) of IBC states that the Adjudicating Authority shall reject the petition if the Operational Creditor has not delivered the invoice or notice for payment to the Corporate Debtor. “In the case on hand the demand notice dated 15/11/2021 admittedly was in respect of the default claimed to have occurred on 31/03/2020 which default indisputably whipped of consequent upon the petitioner and the respondent entering into the MOU date 18/02/2022, supra, whereunder the first rescheduled payment to commence from February 2022. The demand notice dated 15/11/2020 being prior to February 2022, and as there is no pleading as to the date of default if any, ‘in presente’ or post entering of the MOU, supra, the purported default dated 15/11/2022 cannot be treated as the date of occurrence of default for the purpose of the notice demanding [payment] of the operational debt in terms of the explanation provided to section 8 of the IB Code. Therefore, the present initiation of Corporate Insolvency Resolution Process against the respondent by the petitioner is nothing but a shear abuse of IB Code, violative of Section 9(5) (ii) ( C) of IB Code, besides an exercise of chasing of payment or building pressure for releasing the payment.” The Bench held that the date of default mentioned in the petition is factually incorrect and rejected the petition for not being maintainable. “Therefore, it as clear as crystal, that consequent upon entering into the undisputed MOU dated 18/02/2022, whereunder the repayment of dues under the Trade Agreement dated 30.09.2023 have been rescheduled, the date of default relied on for the purpose of the present proceeds is factually incorrect and a deliberate factual mis quote by the petitioner.” Case Title: M/s Tata International Limited v M/s Trident Sugars Ltd Case No.: CP (IB) No. 221/9/HDB/2022 Counsel For Petitioner: Shri. Y Suryanarayana Ld. Counsel for Mrs.Mano Ranjani, Advocate for Petitioner. Counsel for Respondent: Sri. P. Sri Raghuram, Ld. Sr. Counsel for Shri....

Post Occurrence Of Default, Parties Entered Into MoU And Re-Scheduled Payments: NCLT Hyderabad Declines To Initiate CIRP

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Post Occurrence Of Default, Parties Entered Into MoU And Re-Scheduled Payments: NCLT Hyderabad Declines To Initiate CIRP

Pallavi Mishra

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Pallavi Mishra

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