2024 TaxPub(CL) 158 (NCLAT-
New Del)
INSOLVENCY AND BANKRUPTCY CODE, 2016
Sections
7 & 10A
If the default is committed prior to section 10A period and continues in
section 10A period, this statutory provision does not put any bar on the
initiation of CIRP proceedings
|
Initiation of CIRP - Adjudicating
Authority rejected application by virtue of benefit under section 10A - Appeal
filed- - Allowability thereof
Application under section 7 was filed on account
of non -payment of loan amount. The default was continued much prior to the
commencement of section 10A. The application was rejected by the Adjudicating
Authority. It was ordered that section 7 application being premised on a letter
calling for loan repayment and the date was falling during the prohibited
period under section 10A renders the petition non-maintainable. Held:
It was concluded that the default was undisputedly committed before the bar of
section 10A came into play. There being categorical default by the Respondent
prior to section 10A period, the Corporate Debtor was clearly not entitled to
claim the benefit of section 10A period. Section 7 application was not
maintainable as the alleged default occurred during section 10A period was not
tenable.
REFERRED : Narayan Mangal v.
Vatsalya Builders & Developers (P) Ltd. 2023 SCC Online NCLAT 545
FAVOUR : Appeal allowed
A.Y. :
IN THE NCLAT, PRINCIPAL BENCH,
NEW DELHI
ASHOK BHUSHAN, CHAIRPERSON &
BARUN MITRA, TECHNICAL MEMBER
Sushma Paranjpe v.
Rohan Developers (P) Ltd.
Company Appeal (AT)
(Insolvency) No. 520 of 2023
6 December, 2023
Appellant by: Tanmaya Agarwal, Aditi Agarwal, Neel Kamal Mishra, Advocates
Respondent by: Gaurav Mitra, Radhika Gautam, Adit Singh, Abhishek Singh Chauhan,
Advocates
Barun Mitra, Technical
Member
The present appeal filed under
section 61 of Insolvency and Bankruptcy Code, 2016 ('IBC' in short) by the
Appellant arises out of the Order, dated 3-3-2023 (hereinafter referred
to as 'Impugned Order') passed by the Adjudicating Authority (National Company
Law Tribunal, Mumbai Bench-IV) in CP (IB) No. 908/MB-IV/2021. By the
impugned order, the Adjudicating Authority has dismissed the Section 7
application filed by Mrs. Sushma Paranjpe-Financial Creditor/present Appellant
seeking initiation of Corporate Insolvency Resolution Process ('CIRP' in short)
against the Corporate Debtor - Rohan Developers Private Limited/present
Respondent. Aggrieved by the impugned order, the present appeal has been filed
by the Appellant.
2. The learned Counsel for the Appellant has submitted that Shri Vijay
N. Paranjpe ('Vijay' in short), the deceased husband of the present Appellant
paid a sum of Rs.4 crore to the Respondent/Corporate Debtor who was engaged in
real estate business. This sum of Rs. 4 crore was paid in 2008 as earnest money
against advance sale consideration for booking of a flat. Since there was no
progress in the said project until 2011, Vijay sought refund of the earnest
money following which the Respondent assured to return the same with interest @
12% per annum. Since then, the sum of Rs.4 crore was mutually treated as
unsecured loan and reflected accordingly in the books of the account of the
Corporate Debtor/Respondent. Interest thereon was paid by the Respondent and
TDS also deducted thereon for which confirmation of books of accounts was
periodically sought from Vijay by the Respondent. Thus, it was contended that
the Respondent by his own conduct changed the status of the Appellant from
home-buyer to a financial creditor.
3. It was further submitted that the Respondent paid regular interest
till F.Y. 2015-16 until on 31-3-2017 on grounds of financial crunch he sought
waiver of interest from Vijay which request was however declined. It is the
contention of the Appellant that the Respondent thereafter defaulted in making
interest payment since October, 2017 and continued to default from F.Y. 2017-18
until F.Y. 2020-21 except for part repayment in 2018. It is further submitted
that on the demise of Vijay on 21-10-2018, the loan amount was transferred in
the name of the Appellant which stands confirmed from the confirmation of
account for F.Y. 2019-20 signed by the Respondent. On account of non-payment of
debt, a Letter, dated 1-2-2021 was sent by the Appellant to the
Respondent demanding a sum of Rs. 6,20,01,000 which included principal amount
of Rs. 4,09,00,000 and Rs. 2,11,01,000 as interest. Since the amount remained
outstanding, the Appellant filed an application section 7 of the IBC on
6-10-2021 for initiating CIRP of the Corporate Debtor/Respondent for default
having occurred in the F.Y. 2016-17, more particularly on 1-10-2017.
4. Elaborating further on the developments, it was added by the learned
Counsel for the Appellant that the Adjudicating Authority took the misplaced
view that as no time period was stipulated in the demand notice, it may be held
that no default had occurred. In terms of the impugned order, alternatively,
default can be deemed to have occurred in February 2021 since the loan recall
notice was dated 1-2-2021. However, this date fell in the prohibited period
under section 10A of the IBC was unsustainable. Thus, the Adjudicating
Authority held that in both these circumstances the Section 7 application was
non-maintainable.
5. Assailing this finding returned by the Adjudicating Authority on the
non-maintainability of the section 7 application, it has been strenuously
contended that initiation of section 7 proceedings cannot be held to be barred
since the default occurred in October 2017 when the Respondent failed to pay
the interest on the unsecured loan which period was prior to the section 10A
period and the default had continued thereafter in the section 10A period. In
support of their contention, the learned Counsel for the Appellant has relied
on the judgment of this Tribunal in Narayan Mangal v Vatsalya Builders &
Developers (P) Ltd. 2023 SCC Online NCLAT 545 where it has been clearly
held that if the default is committed prior to section 10A period and continues
in the section 10A period, the initiation of proceeding under section 7 is not
barred.
6. Making counter contentions, the learned Counsel for the Respondent
has submitted that there was no agreement between Vijay and the Respondent with
respect to the amount advanced by him. Thus, there is nothing on record which
outlines the terms of repayment of the amount invested by Vijay. It is also the
contention of the Respondent that the investment was made by the Appellant to
receive returns on investment from the Corporate Debtor. Hence, the sum
advanced was in the nature of speculative investment and cannot be treated as a
financial debt.
7. It has been further contended by the learned Counsel for the
Respondent that the company petition is not maintainable since the Appellant is
not an 'allottee' within the meaning of section 2(d) of the Real Estate
(Regulation and Development) Act, 2016. It has been further stated that even if
the Appellant is considered to be an allottee, the present section 7
application is liable to be dismissed since it does not fulfil the requirement
of filing such an application jointly by not less than 100 of such creditors in
the same class or not less than 10% of the total number of such creditors in
the same class in terms of the proviso to section 7 of IBC.
8. It has been argued that in the absence of any express/implied
repayment schedule, the date of default as claimed by the Appellant/Financial
Creditor cannot be acceded to and the Appellant cannot seek right to repayment
as per his choice without justifiable explanation. Furthermore, since the sum
advanced can at best be treated as a 'Loan on Demand' and the demand for
repayment was made by the Appellant vide their letter dated 1-2-2021, the date
of default can only be February 2021 and not October 2017 as claimed by the
Respondent. It is also been strongly contended that the Appellant has failed to
place any material on record to establish that any default occurred in October
2017 and thus failed to justify 1-10-2017 to be the date of default.
9. The learned Counsel for the Respondent also contended that the
Adjudicating Authority had rightly dismissed the company petition on the ground
that the Appellant had addressed the loan recall notice on 1-2-2021 which date
falling under the period stated under section 10A of the IBC, the default arose
during the prohibited period and hence the petition was not maintainable.
10. We have duly considered the arguments advanced by the learned
Counsel for the parties and perused the records carefully.
11. We notice that it is the contention of the Appellant that the
Respondent has not disputed the fact that prior to February 2011, no amount was
paid by them towards interest on the principal amount of Rs.4 crore to the
Appellant. Only after February 2011, the principal sum came to be treated as
unsecured loan in the books of account of the Respondent/Corporate Debtor. The
confirmation of account duly signed by the Respondent for F.Y. 2011-12 to
2018-19 has been placed on record by the Appellant at Annexure-D of the Appeal
Paper Book ('APB' in short) which shows that the amount was being treated as
unsecured loan since F.Y. 2011-12. Averment was made by the Appellant that
several letters were issued by the Respondent seeking confirmation from Vijay
in respect of the unsecured loan, interest paid and TDS on interest which all
cumulatively go to show the mutual acknowledgment of loan transaction between
the two parties. Thus, it has been contended that there is a clearcut admission
of on the part of the Respondent of having received an unsecured loan from the
deceased husband of the Appellant which loan amount was transferred in the name
of the Appellant subsequently. Prima facie therefore it has been
asserted that debt qua the Appellant stands established.
12. Furthermore, it has been stated that the Respondent has not disputed
the fact that the Corporate Debtor was paying interest to the Appellant since
2011. It is also an undisputed fact as evident from a communication dated
31-3-2017 at page 34 of APB that making an admission of their financial
difficulties a request was made for waiver of interest by the Respondent to
Vijay which was not acceded to by the latter. It is their case that the
Respondent default in the payment of interest arose only thereafter. One fact
that has been contested is that while the Appellant has contended that the
Respondent started defaulting in the payment of interest since October 2017,
the Respondent has claimed to have paid interest even in 2018. In support of
their assertion, attention has been adverted to page 33 of APB which shows that
interest was paid on 4-9-2018 by the Respondent. Be that as it may, the
Appellant has vehemently contended that no claim has been made that the
interest payments continued to be discharged by the Corporate Debtor after part
payment was done in September 2018. Neither has any material been placed on
record to show that the interest payments were remitted thereafter except for
some part repayment in 2018. Prima facie, the Appellant has emphatically
asserted that there is sufficient material on record which shows that default
in repayment of debt arose in October 2017 and the defaults continued
thereafter except for one tranche paid in September 2018.
13. It may be useful at this stage to notice how the impugned order has
dealt with the issue at hand. The relevant excerpts of the impugned order are
as follows :--
'9. It is not
disputed that the advance consideration paid by the Financial Creditors for
booking a flat was later converted into a loan as can be perused from the Letter,
dated 31-3-2017 sent by the Corporate Debtor addressing the late husband of
the Financial Creditor requesting for a waiver of interest and further
substantiated by the Confirmation Accounts for financial year 2011-12 till
2019-20 signed by the Corporate Debtor. Since there was no stipulation as to
the rapid of said amount, the loan partake the character of demand loan
repayable on demand. The Financial Creditor called for repayment of the amount
due from Corporate Debtor vide letter 1-2-2021 and the said letter did not
contain the date or period by which the amount was to be paid by the Corporate
Debtor. In case it is considered that the loan was repayable immediately on
upon receipt of Letter, dated 1-2-2021, the default can be said to occur
on 4-2-2021, considering that the notice is deemed to have been delivered in 48
hours. This date falls under the period stated under section 10A, which bars
initiation any proceeding under the code for the default occurring during that
period. Alternatively on the perusal of the demand notice it can be made out
that no time period was stipulated in the demand notice for repayment of the
amount due from the Corporate Debtor, it cannot be that any default had
occurred. Thus, in both the cases the petition is not maintainable.
10. After
perusal of the material on record, this Bench is of considered view that the
Petition under section 7 filed by the Financial Creditor to initiate the CIRP
against the Corporate Debtor is not maintainable.'
14. The principal finding of the impugned order is that the section 7
application was not maintainable by holding the date of default to be February,
2021 which was during the prohibited period under section 10A of the IBC. This
brings us to the issue relating to maintainability of the instant section 7
application of the Appellant.
15. For proper appreciation of the facts, we may begin by perusing the
section 7 application filed by the Appellant with particular reference to Form
1 at Part IV of the Application under Rule 4 of the Insolvency and Bankruptcy
(Application to the Adjudicating Authority) Rules, 2016. Against the heading
'Amount claimed to be in default', the entry made by the Appellant is to the
effect: 'The amount claimed to be in default is Rs. 6,20,01,000 (Rupees Six
Crore Twenty Lakh One Thousand Only) with further interest thereon at the rate
of 12% per annum on the principal amount from 1-1-2021 till payment and/or
realisation.' As against the column 'Date on which default occurred', the entry
made by the Appellant is to the effect: 'The default occurred in the F.Y. 2016-17,
more particularly 1-10-2017'.
16. It is, however, the case of the learned Counsel for the Respondent
that payment of interest has been made even after October 2017 on 4-9-2018.
Therefore, it has been contended that the date of default as claimed by the
Appellant to be October 2017 is whimsical and lacks basis. Mere insertion of
any date in Form 1 at Part IV of the section 7 application does not make that
date of default valid and binding especially when there is no agreement between
the two parties as to what shall constitute an event of default. In the absence
of agreement specifying the events of default, the alleged date of default
cannot be whimsically decided by the creditor and the creditor needs to be put
to strict proof to establish the date of default. It is further the contention
of the Respondent that since the Appellant had raised demand for repayment of
the outstanding amount by way of a Letter, dated 1-2-2021, the
Adjudicating Authority had rightly considered the date of default to be in
February 2021 and not October 2017. Since the Appellant had addressed the loan
recall notice on 1-2-2021 and the said letter did not contain any date by which
date the amount had to be repaid by the Respondent, default can be deemed to
have occurred in February 2021. Since this period falls under the prohibited
period under section 10A of the IBC, the default arose during the prohibited
period and hence the petition was not maintainable.
17. At this stage, it may be useful to have a look at section 10A of IBC
which is as follows :--
Section 10A
: Suspension of initiation of corporate insolvency resolution process.
10A. Notwithstanding anything contained in sections 7, 9 and 10, no
application for initiation of corporate insolvency resolution process of a
corporate debtor shall be filed, for any default arising on or after 25-3-2020
for a period of six months or such further period, not exceeding one year from
such date, as may be notified in this behalf:
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.
Explanation.--For the removal of doubts, it is hereby clarified that the
provisions of this section shall not apply to any default committed under the
said sections before 25-3-2020.
18. A plain reading of section 10A signifies that no
application/proceedings under sections 7, 9 and 10 can be initiated for any
default in payment which is committed during section 10A period. The object and
purpose of section 10A has been explained in the ordinance by which section 10A
was brought into operation. What is essentially barred is initiation of CIRP
proceedings when the Corporate Debtor commits any default during the section
10A period. However, if the default is committed prior to the section 10A
period and continues in the section 10A period, this statutory provision does
not put any bar on the initiation of CIRP proceedings. Thus, the aim and
objective of section 10A was to protect a Corporate Debtor from the filing of
any insolvency application against it for any default committed during the
period when Covid-19 pandemic was prevailing. It was never intended to cover
any default which occurred before section 10A period and continuing thereafter.
19. The present is a case where prima facie the default has been
committed by the Corporate Debtor since 2018 which is prior to commencement of
section 10A period. Hence, this is a case where the default was undisputedly
committed before the bar of section 10A came into play. There being categorical
default by the Respondent prior to section 10A period, the Corporate Debtor was
clearly not entitled to claim the benefit of section 10A period. Since the
liability to pay interest arose prior to section 10A period since the default
was committed prior to section 10A period, we are of the considered opinion
that the view taken by the Adjudicating Authority that the section 7
application being premised on a letter calling for loan repayment which was
dated 1-2-2021 and this date falling during the prohibited period under section
10A renders the petition non-maintainable is misconceived and untenable in the
eyes of law. Considering the overall facts and circumstance of the present
case, we have no hesitation in holding that the finding returned by the
Adjudicating Authority that the section 7 application was not maintainable as
the alleged default occurred during the section 10A period is not tenable.
20. We do not find any cogent basis for the Adjudicating Authority to
have dismissed the section 7 application of the Financial Creditor on grounds
of non-maintainability in the context of section 10A of the IBC. We would also
like to observe that the Adjudicating Authority has not returned any findings
on the basic issue of debt and default which has been the bone of contention.
We are of the considered view that, prima facie, the corpus of facts and
material on record are sufficiently adequate to consider the present section 7
application on merits. The appeal is allowed. The impugned order is, therefore,
set aside. Without expressing any opinion on the merits of the claim of the
Appellant, the section 7 application filed by the Appellant is revived and remanded
back to the Adjudicating Authority to be considered again in accordance with
law. No order as to costs.