Small Industries Development Bank Of ... vs Sambandh Finserve Private Limited on 5 July, 2024
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
PRINCIPAL BENCH: NEW DELHI
Company Appeal (AT) (Insolvency) No. 784 of 2023
(Arising out of the Impugned Order dated 08th May, 2023 passed
by the 'Adjudicating Authority' (National Company Law
Tribunal, Cuttack Bench in C.P. (IB) No. 27/CB/2023]
IN THE MATTER OF:
Small Industries Development
Bank of India (SIDBI)
Having Head Office at:
SIDBI Tower, 15, Ashok Marg
Lucknow - 226001 and
Branch Office amongst other at:
Places at: Plot No. L3, Jayadev Vihar
Opposite Loyala School, Near XIMB Vihar
Bhubaneswar - 751013
Email: perik@sidbi.in ...Appellant
Versus
Sambandh Finserve Private Limited
Having Head Office at:
Jubilee Villa, Plot No.7, Sindhi Colony
Mission Hatta, Rajgangpur - 770017
Email: contactus@sambandhfin.com ...Respondent
Present:
For Appellant : Mr. Sujoy Datta and Ms. Mahima Shekhawat,
Advocates.
For Respondent : None
JUDGMENT
(Hybrid Mode) [Per: Arun Baroka, Member (Technical)] The present Appeal is being preferred under Section 61(1) of the Insolvency and Bankruptcy Code, 2016 ("IBC") against the Impugned Order dated 08.05.2023 passed by the Learned Adjudicating Authority, National Company Law Tribunal (NCLT), Cuttack Bench in Company Petition (IB) No. 27/CB/2023.
2. The Appellant - Small Industries Development Bank of India (SIDBI)- established on 02.04.1990 under an Act of the Indian Parliament, serves as the Principal Financial Institution for the Promotion, Financing, and Development of the Micro, Small, and Medium Enterprise (MSME) sector. It is also responsible for coordinating the functions of similar institutions.
3. The Respondent Company- Sambandh Finserve Private Limited- incorporated on 03.07.1996 under the Companies Act 1956, is a private entity registered with the ROC Cuttack. Initially an NBFC, its license was canceled by the Reserve Bank of India, and an Administrator has been appointed to oversee its operations.
4. Despite repeated opportunities the Respondent did not file any reply. Heard Counsel of the Appellant and also perused the documents on record including the reply of the Respondent before the AA.
5. At the request of the Respondent, the Appellant sanctioned two Term Loans of Rs. 20 Crores and Rs. 30 Crores via Letters of Intent dated 21.02.2019 and 23.10.2019, respectively. The Respondent's Board of Directors passed resolutions on 22.02.2019 and 23.10.2019, accepting the terms and conditions of these loans.
6. Subsequent to the Board Resolutions, Loan Agreements were executed on 26.02.2019 and 25.10.2019 for the respective loan amounts. These agreements incorporated the terms and conditions outlined in the Letters of Intent and the Appellant's General Conditions. Company Appeal (AT) (Insolvency) No. 784 of 2023 2 of 22
7. The parties executed Deeds of Hypothecation on 26.02.2019 and 25.10.2019, where the Respondent Company hypothecated all its book debts, revenues, receivables, and claims as security for the loans. The charge was successfully created and registered with the Registrar of Companies, Cuttack.
8. The Appellant disbursed Rs. 20 Crores on 28.02.2019 and Rs. 30 Crores in two tranches of Rs. 15 Crores each on 14.11.2019 and 17.01.2020, in accordance with the Letters of Intent and Loan Agreements.
9. The Respondent was obligated to repay the full principal amount within 36 months from the date of disbursement, with installments due on the 10th of each month. The Respondent defaulted on these payments post-November 2020, and the account was classified as NPA on 15.12.2020. As of 05.09.2022, Rs. 35,65,60,488/- was outstanding.
10. Due to financial indiscipline, the Reserve Bank of India canceled the Respondent's NBFC license, and an Administrator was appointed on 04.11.2020 to oversee operations.
11. The account of the Respondent was classified as NPA on 15.12.2020, which is an admitted position by the Appellant.
12. The Respondent continued to default on payments throughout 2021. Consequently, the Appellant filed an Application under Section 7 of the IBC on 14.09.2022, bearing Company Petition (IB) No. 42/CB/2022. Respondent, through Mr. Anandi Charan Sahu, appointed Administrator of the Company Appeal (AT) (Insolvency) No. 784 of 2023 3 of 22 Respondent Company categorically admitted that the Respondent had borrowed funds from the Appellant and that the Respondent had defaulted in payment of the instalments of the loan after September 2020. Initial Dismissal of Application by the AA:
13. The Order was pronounced by the Adjudicating Authority, on 22.11.2022, whereby it was rejected on the ground that the Application was hit by Section 10A of the IB Code basis the default date being 15.12.2020. Appeal before NCLAT:
14. The Appellant filed Appeal before this Tribunal bearing Company Appeal (AT) (Insolvency) no. 28 of 2023 against the Order passed by Adjudicating Authority dated 22.11.2022 in CP IB No. 42/CB/2022, on the ground that the Company Petition was erroneously dismissed by the Ld. Adjudicating Authority because of bar under Section 10A of the IB Code. This Tribunal gave liberty to the Appellant to file fresh Application in accordance with law, vide order dated 12.01.2023, and passed the following order:
"....There being clear categorical statement in Part-IV that date of default is 15.12.2020 which is a period during which Section 10-A had operation we thus are of the view that no error has been committed by the Adjudicating Authority rejecting Application filed under Section 10-A. However, ends of justice will be served in giving liberty to the Appellant to file fresh Application in accordance with law. We make it clear that we are not expressing any opinion in merits of the Application. It is for the Adjudicating Authority to consider the application if so filed and decide in accordance with law. The Appeal is dismissed with the above liberty...."
Company Appeal (AT) (Insolvency) No. 784 of 2023 4 of 22 Filing of Fresh Application before the AA:
15. A fresh application under Section 7 of the IBC was filed as CP(IB) No. 27/CB/2023, reflecting the default date of 10.07.2021. The Respondent admitted both the debt and default in their counter affidavit, emphasizing that initiating insolvency proceedings would be beneficial.
16. The Adjudicating Authority heard both the parties and passed the Impugned Order dated 08.05.2023 and dismissed the company petition on the ground that the company petition for the same debt against the same debtor is not maintainable because of dismissal of previous petition bearing CP No. 42/CB/2022. The relevant extracts of this order are as follows:
"5. The previous petition C.P.No.42/CB/2022 and the present petition are filed on the same debt. The previous petition was dismissed since the default date 15.12.2020 falls during the suspension period to initiate CIRP under section 10A of IBC 2016. Now the present petition is filed without specifically mentioning the date of default in the relevant column.
In part IV (2) of the petition it is mentioned that amount claimed from "10.07.2021 to 10.12.2022". At the time of argument, petitioner counsel stated that the default rely by the petitioner for this petition is 10.07.2022, but it is not so specifically stated in the relevant column of the petition. In page 4 of the petition under the caption List of Dates, 10.07.2021 is mentioned against the column Date of Default. The date of default 10.07.2021 rely by the petitioner is not in consonance with the averment made in the petition. In page 9 para--K and in page 18 sub-clause ix to part IV of the petition it is averred that "That the corporate Debtor paid instalments up to November 2020 and thereafter defaulted in payment of the principal amount as well as the interest in terms of the loan Agreement". The above passage reiterated the fact what Company Appeal (AT) (Insolvency) No. 784 of 2023 5 of 22 stated in the previous petition C.P.No.42/CB/2022 that the respondent committed default in the month of December, 2020.
6. The petitioner stated in page 20 sub-clause xiii to Part IV of the petition that the previous petition C.P. (IB) No.42/CB/2022 was filed on 14.09.2022 under section 7 of IBC 2016 there by inadvertently mentioned two dates of defaults. One date being the date on which corporate debtor's account was declared as NPA i.e., 15.12.2020 and the other date of default i.e., 10.12.2022, due to which this Tribunal vide order dated 22.11.2022 rejected the application. It is not understandable how the second date of default could be mentioned as 10.12.2022 in a petition filed on 14.09.2022. The said petition also dismissed on 22.11.2022, then how it is possible to mention the date of default as 10.12.2022 in the petition which was dismissed on 22.11.2022 prior to this default date. These discrepancies are not properly explained.
7. The petitioner filed this petition changing the date of default from 15.12.2020 to 10.07.2021. On the petitioner side unable to justify/explain how the date of default is fixed as 10.07.2021. The Apex court in "Ramesh Kymal Vs. Siemens Gamesa Renewable Power Pvt. Ltd., (2021) 3 SCC 224"
held that the date of default cannot be changed. Of course, the supra citation is relating to section 9 of IBC 2016.
8. No petition under section 7,9 and 10 IBC 2016 can be filed for the default falls between 25.03.2020 to 24.03.2021 in view of specific bar provided under section 10A of IBC 2016. Proviso to Section 10A runs as follows:
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.
9. The proviso made it clear that once the date of default falls within the period set out in Section 10A, initiation of CIRP is totally barred forever. In this case in respect of the debt mentioned in the petition, petition already filed by the petitioner against the respondent, the same was rejected by this Adjudicating Authority in C.P. No, Company Appeal (AT) (Insolvency) No. 784 of 2023 6 of 22 42/CB/2022 by order dated 22.11.2022. As per the proviso to section 10A of IBC 2016, no petition can be filed for ever relating to the same debt.
10. Now in contrary to proviso to section 10A of IBC 2016 on the petitioner side attempt to initiate the CIRP bye passing the proviso to section 10A by adopting novel method of fixing/shifting the date of default on its own, to suit their convenience, the same is not permissible. The expression "shall ever be filed" is a clear indicator that the intent of the legislature is to bar the institution of any application for the commencement of the CIRP in respect of a default which has occurred between 25.03. 2020 to 24.03.2021. The petitioner cannot be permitted to circumvent the situation and file the petition against the statutory bar provided under the Act.
11. On the petitioner side rely upon the NCLAT-Delhi Citation Koncentric Investments Ltd and Another vs Standard Chartered Bank London and Another 2022 SCC OnLine NCLAT 1254, this is the citation relating Limitation there it is held that non-filing of petition under section 7 IBC, 2016 on default of interest shall not foreclose the right of the financial creditor to file an Application under section 7 IBC, 2016 when default on first instalment occurred subsequently and when entire loan became due. In the case in our hands the question of limitation not arises, the issue is whether the financial creditor can change the date of default, and file a fresh petition, when the previous petition filed by him was dismissed because of statutory bar provided under section 10A IBC, 2016. In the scenario the supra citation is not helpful to the case of the petitioner.
12. In these circumstances it is answered that because of dismissal of previous petition C.P.No.42/CB/2022, this second petition for the same debt against the same debtor is not maintainable in consequence the petition is DISMISSED."
Grounds for Appeal:
17. The Impugned Order dated 08.05.2023, dismissing the fresh company petition, is erroneous on several grounds:
Company Appeal (AT) (Insolvency) No. 784 of 2023 7 of 22 o The dismissal of the previous application should not be a consideration since this Hon'ble Tribunal explicitly allowed the Appellant to file a fresh application.
o The default date of 10.07.2021 is consistent in the List of Dates and Part IV of the Company Petition.
o The existence of continuing defaults by the Respondent is clear from the Appellant's statement of account, with each unpaid installment constituting a fresh default.
o The Respondent categorically admitted its default and did not oppose the initiation of the Corporate Insolvency Resolution Process (CIRP).
18. Appellant claims that the Adjudicating Authority's dismissal of the fresh company petition is unjustified and requests to set aside the Impugned Order dated 08.05.2023 and to initiate the Corporate Insolvency Resolution Process against the Respondent in accordance with the provisions of the IBC.
19. Appellant claims that amendment of pleading in an application under Section 7 of the IBC can be allowed and even the date of default in Part IV of Form 1 can be amended and relies on the following two judgements:
o Hon'ble Supreme Court in 'Dena Bank Versus C. Shivakumar Reddy & Anr.' (2021) 10 SCC 330; (142) [AUGUST 04, 2021] o NCLAT's judgement in 'Abhijeet Infrastructure Ltd. Versus State Bank of India' Company Appeal (AT) (Insolvency) No. 1403 of 2023. [02.11.2023]
20. Appellant has also relied upon the following legal precedents:
20.1 M. Suresh Kumar Reddy vs. Canara Bank & Ors., Civil Appeal No.7121 of 2022.
Company Appeal (AT) (Insolvency) No. 784 of 2023 8 of 22 20.2 Kotak Mahindra Bank Ltd. v. Anuj Kumar, 2015 SCC OnLine Del 14130.
20.3 'Mr. Manmohan Singh Jain vs State Bank of India', Company Appeal (AT) (CH) (INS) No. 97 of 2021.
Appraisal:
21. Heard the counsel of the Appellant and despite many hearings no one had appeared on behalf of the Respondent. We had perused the records including the reply of the Respondent before the Adjudicating Authority.
22. Maintainability of the Appeal:
Firstly, we note that this Appellate Tribunal had granted the liberty vide Order dated 12.01.2023 in Company Appeal (AT) (Ins.) No. 28/2023 wherein it was ordered that:
"...We make it clear that we are not expressing any opinion in merits of the Application. It is for the Adjudicating Authority to consider the application if so filed and decide in accordance with law. The Appeal is dismissed with the above liberty."
The previous dismissal of the application should not impact the current petition, as this Tribunal had explicitly allowed the Appellant to file a fresh application. The fresh application complies with this directive, correcting earlier technical errors and accurately reflecting the default date. Therefore, there was no bar on the Appellant to file a fresh application before the Adjudicating Authority against same debt and against the same corporate debtor. And thus the Appeal is maintainable on at least this ground.
Admission of Debt and Default by Respondent:
23. The Respondent has explicitly admitted to borrowing funds from the Appellant and defaulting on repayment post-September 2020. Additionally, Company Appeal (AT) (Insolvency) No. 784 of 2023 9 of 22 the Respondent acknowledged that initiating the Corporate Insolvency Resolution Process (CIRP) would be beneficial, supporting the Appellant's case for insolvency proceedings. It is clearly accepted by the Respondent in his Counter Affidavit on behalf of the Corporate Debtor:
"3. That it is humbly submitted that the Corporate Debtor had borrowed funds from the Financial Creditor as spelt out in Section-7 application and it is also a fact that the Corporate Debtor has defaulted in repaying the loan amount after September, 2020 due to financial irregularities committed within the Corporate Debtor Company.
4. That it would be relevant to mention that the Reserve Bank of India has cancelled the Certificate of Registration (COR) vide letter dated 16/09/2021 which was granted to the Corporate Debtor for carrying out NBFC-MFI activities. Furthermore, it is submitted that the Corporate Debtor had stopped all its NBFC-MFI activities since October, 2020 after the incidence of financial irregularities due to internal corporate fraud came to the fore.
5. That it is humbly reiterated that the corporate debtor has in fact defaulted in making payment to the Section-7 Application. Since the present case mostly revolves on documentary proof which shows that the Corporate Debtor has in fact defaulted in making payment to the Financial Creditor for the loan taken from the Financial Creditor. the Corporate Debtor Cannot run away from the fact that it has defaulted from making payment of the loan to the financial creditor and as such the contentions raised in Section-7 Application are admitted. As On date, the principal amount due to the Financial Creditor from the Corporate Debtor amounts to Rs. as on 31.03.2023 which is exclusive of interest till 31/03/2023.
6. That it would be extremely relevant to mention that the Corporate Debtor company is not in the best Of financial health and it is not in a position to repay the debt amount.
Under these circumstances, if the present application Company Appeal (AT) (Insolvency) No. 784 of 2023 10 of 22 under Section-7 IBC, 2016 is admitted, then it would be beneficial to the parties."
24. Changing of default date -Allowable or not?
a) The appellant had filed two company petitions one in 2022 [CP IB No. 42/CB/2022] and the other one [CP(IB) No. 27/CB/2023] in 2023. The crucial thing about these Applications is about the date of default in column 2 of Form I under the under Section 7 of IBC read with Rule 4 of the Insolvency and Bankruptcy application to adjudicating authority Rules 2016
- which captures the amount claimed to be in default and also the date on which the default occurred. For the two applications dates of default have been compared as follows:
Extracts from Part IV CP IB No. CP(IB) No. 27/CB/2023 42/CB/2022 Filed on 01.06.2023 Filed on 14.09.2022
2. Amount claimed Rs.35,65,60,488.00 Ps The aforesaid borrowers as on 05.09.2022;
to be in default committed default and
DATES OF DEFAULTS:
and the date on The Corporate Debtor amount claimed from
which the default has committed default 10.07.2021 to 10.12.2022
occurred (Attach in payment of both and the Financial Creditor
the workings for term loan accounts and claims following amounts:
computation of also defaulted in Amount due till 10.12.2022
amount and days payment of instalments as mentioned in O.A.
of default in in Term Loan accounts Rs.47,74,79,929.00
tabular form) and also defaulted in In view of the default committed
payment of instalments by along with interest as on
in Term Loan Accounts 10.12.2022 is
and the default is still Rs.47,74,79,929.00, no
subsisting. The date of payments are received till date
default is 15.12.2020. of filing of this Application.
Company Appeal (AT) (Insolvency) No. 784 of 2023 11 of 22
b) It is argued by the Appellant that the second petition [Company Appeal (AT) (Ins.) No. 28/2023] was filed as due to human error in the original petition filed, the date of default was stated incorrectly. However, there was material on record (namely the Statement of Account) showing that the default was also beyond the period covered by Section 10A and it is a sufficient ground to file fresh application.
c) Accordingly, second Appeal was filed rectifying the error and mentioning the date of default as 10.07.2021 which matched the Statement of Accounts of the Appellant. The date of default was mentioned as 10.07.2021 for the reason that each default of the Respondent in non- payment of instalment and interest thereon amounts to fresh cause of default and event of default as per the General Conditions of the Loan Agreement.
d) Defaults continued to occur on 10.04.2021, 10.05.2021, 10.06.2021 and on 10.07.2021, amounting to a total more than threshold of Rs. 1 crore on the date of default of 10.07.2021. This is evident from the Statement of Accounts of Appellant on record which shows that the instalments were due on 10.04.2024 and was not paid and also the subsequent instalments were also not paid. These defaults are new, independent events of default, separate from those covered under Section 10A. These fresh defaults justify the initiation of CIRP, as they occurred after the suspension period and meet the threshold for filing under the IBC. While in respect of the defaults covered under Section 10A certainly no petition may ever be filed, these defaults are Company Appeal (AT) (Insolvency) No. 784 of 2023 12 of 22 beyond the said period and a petition is maintainable on the basis of these defaults. These are noted at page no. 113 of the Appeal Paper Book.
e) The Appellant, SIDBI, has clearly demonstrated that the Respondent, Sambandh Finserve Private Limited, has ongoing defaults on its loan Company Appeal (AT) (Insolvency) No. 784 of 2023 13 of 22 repayments. Each missed installment constitutes a fresh default, as evidenced by the statement of accounts. This ongoing failure to meet repayment obligations justifies the initiation of insolvency proceedings.
f) Furthermore, in terms of the GCC dated 25.10.2019 governing Loan Agreement dated 26.02.2019 and 25.10.2019, the loan was repayable in 36 equal monthly instalments, and that default to pay the principal or interest amount at each instalment amounted to a separate and independent default. Relevant conditions are extracted herein where events of default are clearly noted as follows in clause 8.1:
g) In this regard, Appellant is supported by the case of Kotak Mahindra Bank Ltd (supra) wherein it was held that:
"the fact that that the respondent failed to adhere to the schedule of repayment, would not deprive the right of the appellant to treat each breach as a fresh cause of action" and Company Appeal (AT) (Insolvency) No. 784 of 2023 14 of 22 that "the right to sue would occur, in my opinion, each time when, there is a default in payment of an EMI on its due date."
Therefore, it is clear that each failure of the Respondent to pay an instalment in terms of the repayment plan could be treated as a fresh default in payment of the loan amount.
h) Appellant's case is also supported by the judgement of Hon'ble Supreme Court in "Dena Bank" (supra) [AUGUST 04, 2021]. The relevant para 144 is extracted herein:
"There is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with application under Section 7 of the IBC in Form-1. In the absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that the Adjudicating Authority committed any illegality or error in permitting the Appellant Bank to file additional documents."
i) Adjudicating Authority has relied upon the judgement of the Apex Court in "Ramesh Kymal Vs. Siemens Gamesa Renewable Power Pvt. Ltd., (2021) 3 SCC 224" [February 9, 2021] wherein it was held that the date of default cannot be changed, even though the supra citation is relating to section 9 of IBC 2016. But the later judgement of Dena Bank (supra) [AUGUST 04, 2021] deals specifically with Section 7 and also provides that there is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with application under Section 7 of the IBC in Form-1. Appellant's case is strongly supported by this "Dena Bank" (supra) judgement.
Company Appeal (AT) (Insolvency) No. 784 of 2023 15 of 22
j) The Appellant has also relied on 'Mr. Manmohan Singh Jain (supra) wherein this Tribunal had observed that "the non-mentioning of the date of default in Col. IV is not fatal to the application and on the sole ground, the application cannot be rejected merely taking a technical impediment as held by the Hon'ble Supreme Court that 'it is only a directory'. This may not be that relevant as the Appellant had mentioned the dates of default and also the earlier petition default falls in 10A period. But in later petition, for fresh defaults the other dates outside the 10A period will be of assistance for determination of debt and default.
k) Appellant also gets support from this Tribunal in 'Abhijeet Infrastructure Ltd.' (supra) wherein it was held:
"..insofar as allowing Amendment Application I.A. No. 127/CB/2023, we are of the view that the Adjudicating Authority did not commit any error in allowing the Amendment Application permitting the State Bank of India to amend the Part IV of Form-1 in so far as date of default is concerned...''
l) The Appellant's second petition specifies the default date as 10.07.2021, aligning with the List of Dates and Part IV of the Company Petition. This date is consistent with the documented defaults in the Appellant's accounts, establishing a clear timeline for the default outside the Section 10A suspension period the last point to be further examined little later on in this judgement.
Interpretation of Section 10A vis-a-vis Admissibility of Fresh Defaults:
25. The Adjudicating Authority under Section 7 is only limited to determination of existence of debt and default. The said legal position has Company Appeal (AT) (Insolvency) No. 784 of 2023 16 of 22 been reiterated by the Hon'ble Supreme Court in M. Suresh Kumar Reddy vs. Canara Bank & Ors., Civil Appeal No.7121 of 2022. The relevant extracts are as follows:
"..Thus, once NCLT is satisfied that the default has occurred, there is hardly a discretion left with NCLT to refuse admission of the application Under Section 7. Default is defined Under Sub-section 12 of Section 3 of the IB Code which reads thus:
3. Definitions: In this Code, unless the context otherwise requires,-
................
(12) "default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not [paid] by the debtor or the corporate debtor, as the case may be;
Thus, even the non-payment of a part of debt when it becomes due and payable will amount to default on the part of a Corporate Debtor. In such a case, an order of admission Under Section 7 of the IB Code must follow. If the NCLT finds that there is a debt, but it has not become due and payable, the application Under Section 7 can be rejected. Otherwise, there is no ground available to reject the application.'' In the present case, there is a clear case of debt and default, which has been admitted by the Respondent in its Counter Affidavit before the Adjudicating Authority.
26. Furthermore, in the judgment of the Hon'ble Delhi High Court in Kotak Mahindra Bank Ltd. v. Anuj Kumar, 2015 SCC OnLine Del 14130, it was held that the "the fact that that the respondent failed to adhere to the schedule of repayment, would not deprive the right of the appellant to treat each breach as a fresh cause of action" and that "the right to sue would occur, in my opinion, each time when, there is a default in payment of an EMI on its Company Appeal (AT) (Insolvency) No. 784 of 2023 17 of 22 due date." Therefore, it supports the case of the Appellant that each failure of the Respondent to pay an instalment in terms of the repayment plan could be treated as a fresh default in payment of the loan amount.
27. Similar issue was adjudicated by this Tribunal in Company Appeal (AT) (Insolvency) No.444 of 2023 in NuFuture Digital (India) Limited vs Axis Trustee Services Ltd. which was upheld by the Hon'ble Apex Court in Civil Appeal No. 4016/2023 on 03.07.2023. For bringing clarity on the issue, the relevant portions are extracted hereinunder:
"..
2. The Hon'ble Supreme Court in "Ramesh Kymal versus Siemens Games Renewable Power Private Ltd."
(supra) had noticed the objects and purpose of enactment of Section 10A. In the case before the Hon'ble Supreme Court in "Ramesh Kymal versus Siemens Games Renewable Power Private Ltd.", the application under Section 9 was filed by the Operational Creditor on 11.05.2020. An ordinance was passed on 05.06.2020 by which Section 10A was inserted in the I&B Code. The Corporate Debtor sought dismissal of Section 9 application by filing an application which was allowed by the Adjudicating Authority which order was also affirmed in appeal. Appellant's case in appeal before the Hon'ble Supreme Court was that since the application was filed on 11.05.2020 i.e. before insertion of Section 10A on 05.06.2020, the application is not hit by Section 10A, although the default was dated 30.04.2020. The said argument was rejected by the Hon'ble Supreme Court. In Para 19 and 24 following has been laid down:
"19. The proviso to Section 10A stipulates that "no application shall ever be filed" for the initiation of the CIRP of a corporate debtor "for the said default occurring during the said period".
The explanation which has been inserted for the removal Company Appeal (AT) (Insolvency) No. 784 of 2023 18 of 22 of doubts clarifies that Section 10A shall not apply to any default which has been committed under Sections 7, 9 and 10 before 25 March 2020.
24. The substantive part of Section 10A adverts to an application for the initiation of the CIRP. It stipulates that for any default arising on or after 25 March 2020, no application for initiating the CIRP of a corporate debtor shall be filed for a period of six months or such further period not exceeding one year "from such date" as may be notified in this behalf. The expression "from such date" is evidently intended to refer to 25 March 2020 so that for a period of six months (extendable to one year by notification) no application for the initiation of the CIRP can be filed. The submission of the appellant is that the expression "shall be filed" is indicative of a legislative intent to make the provision prospective so as to apply only to those applications which were filed after 5 June 2020 when the provision was inserted. Such a construction cannot be accepted."
3. Hon'ble Supreme Court further in Para 27, 28 and 29 laid down following:
"27. Adopting the construction which has been suggested by the appellant would defeat the object and intent underlying the insertion of Section 10A. The onset of the Covid-19 pandemic is a cataclysmic event which has serious repercussions on the financial health of corporate enterprises. The Ordinance and the Amending Act enacted by Parliament, adopt 25 March 2020 as the cut- off date. The proviso to Section 10A stipulates that "no application shall ever be filed" for the initiation of the CIRP "for the said default occurring during the said period". The expression "shall ever be filed" is a clear indicator that the intent of the legislature is to bar the institution of any application for the commencement of the CIRP in respect of a default which has occurred on or after 25 March 2020 for a period of six months, extendable up to one year as notified. The explanation which has been introduced to Company Appeal (AT) (Insolvency) No. 784 of 2023 19 of 22 remove doubts places the matter beyond doubt by clarifying that the statutory provision shall not apply to any default before 25 March 2020.
28. The substantive part of Section 10A is to be construed harmoniously with the first proviso and the explanation. Reading the provisions together, it is evident that Parliament intended to impose a bar on the filing of applications for the commencement of the CIRP in respect of a corporate debtor for a default occurring on or after 25 March 2020; the embargo remaining in force for a period of six months, extendable to one year. Acceptance of the submission of the appellant would defeat the very purpose and object underlying the insertion of Section 10A. For, it would leave a whole class of corporate debtors where the default has occurred on or after 25 March 2020 outside the pale of protection because the application was filed before 5 June 2020.
29. We have already clarified that the correct interpretation of Section 10A cannot be merely based on the language of the provision;
rather it must take into account the object of the Ordinance and the extraordinary circumstances in which it was promulgated. It must be noted, however, that the retrospective bar on the filing of applications for the commencement of CIRP during the stipulated period does not extinguish the debt owed by the corporate debtor or the right of creditors to recover it."
4. Present is a case where date of default is claimed as 31.03.2021 in Part IV of the application and the application is filed including the default amount as per the Debenture Trust Deed, Schedule V, the default from 31.03.2021 onwards. We have noticed Para 5 of Reply to the application where it was clearly stated that while the total claim would be higher, the present Petition is filed only with respect to the default committed after the 10A period was over i.e. for the default on 31st March 2021 and Company Appeal (AT) (Insolvency) No. 784 of 2023 20 of 22 thereafter. What is prohibited by Section 10A is that no application shall ever be filed for the default which occurred during the period of Section 10A i.e. from 25 th March, 2020 to 25th March, 2021. Section 10A has no application when an action is initiated for default which occurred subsequent to 10A period. Section 7 application as well as Reply filed to I.A. No. 34/2022 clearly indicate that Section 7 application which was filed by the Financial Creditor wad confined to the default committed by the Appellant on 31.03.2021 and thereafter. In Para 7 of the Reply total calculations have been mentioned for arriving at the default amount of Rs.210,46,66,250/-. The defaulted amount included for the calculation are the defaulted amount beginning from 31.03.2021 till end of December, 2023. No defaulted amount included in the Section 7 application is for the period covered by Section 10A, hence, there is no occasion to hold that Section 7 application is barred by Section 10A..."
(emphasis supplied)
28. The material on record (namely the Statement of Account) in the instant case clearly shows that apart from default in 10A period, it was also occurring beyond threshold independently after 25.03.2021 which is beyond the suspension period. In terms of the GCC dated 25.10.2019 governing Loan Agreement dated 26.02.2019 and 25.10.2019, the loan was repayable in 36 equal monthly instalments, and that default to pay the principal or interest amount at each instalment amounted to a separate and independent default. Thus, each default of the Respondent in non-payment of instalment and interest thereon amounts to fresh cause of default and event of default as per the General Conditions of the Loan Agreement and it could be a sufficient ground to file fresh application. Therefore, in situations of fresh default as in the present case, wherein the default is occurring after the 10A period, insolvency proceedings under section 7 of the IBC are justified. Company Appeal (AT) (Insolvency) No. 784 of 2023 21 of 22 Conclusion:
29. In light of the above arguments and legal precedents, this Tribunal is of the view that the Appellant, SIDBI, has established a clear case of continuous defaults by the Respondent, Sambandh Finserve Private Limited, post the suspension period of Section 10A of the IBC. The Respondent's admission of debt and default and the consistency of the default date of 10.07.2021 in the fresh application substantiate the Appellant's claim. Order:
30. Accordingly, the appeal is allowed and the Impugned Order dated 08.05.2023 is hereby set aside. The application under Section 7 of the IBC filed by SIDBI for Corporate Insolvency Resolution Process deserves to be admitted against the Respondent, Sambandh Finserve Private Limited. The matter may be taken up within 10 days by the Adjudicating Authority for initiating CIRP proceedings as per the IBC provisions and to pass consequential orders. No order as to costs.
[Justice Yogesh Khanna] Member (Judicial) [Arun Baroka] Member (Technical) New Delhi 5th July, 2024 pks Company Appeal (AT) (Insolvency) No. 784 of 2023 22 of 22
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