Mr. Puneet P. Bhatia vs Asrec (India) Limited & Anr

(Arising against the impugned order dated 09.01.2024 passed by the National Company Law Tribunal, Mumbai Bench in C.P.(IB)/280 (MB) 2023)

IN THE MATTER OF:

Puneet P. Bhatia (Suspended Director of Barracks Retail India Pvt. Ltd.) Add:- Flat No103, Building No 27, Evershine Millenium Paradise, Thakur Village, Kandivali East, Mumbai City, ...Appellant Mumbai, Maharashtra, India, 400101.

Versus

ASREC (India) Ltd. Add:- Ground Floor, Build No.2, Solitaire Corporate Park, Andheri, Ghatkopar Link Road Chakala Andheri (E), Mumbai, Maharashtra - 400093. ...Respondent No. 1

E-mail: asrec@asrec.co.in

Mr. Ganesh Venkata Siva Rama Krishna Remani Interim Resolution Professional of Barracks Retail India Pvt. Ltd.

Add:- 302, Nahar Business Center Chandivali, Mumbai Suburban, Maharashtra - 400076. ...Respondent No. 2 E-mail: ganesh.remani@nliten.in

Present:

For Appellant : Mr. Sandeep Bajaj, Mr. Soayib Qureshi, Mr. Rishabh Dua, Advocates.

For Respondents : Mr. Sachin Daga, Advocate for R-1.

Mr. Ganesh Remani for IRP.

Cont'd..../ -2-

J U D G M EN T (9th December, 2024)

INDEVAR PANDEY, MEMBER (T)

This appeal arises from an order dated 09.01.2024 by the National

Company Law Tribunal (NCLT), Mumbai Bench-I, (Adjudicating Authority)

in Company Petition (IB)/280(MB)2023. The Appellant, Mr. Puneet P. Bhatia,

a suspended director of Barracks Retail India Pvt. Ltd., the Corporate

Debtor (in short "CD"), has challenged the Adjudicating Authority's (in short

"AA") decision to admit an application for Corporate Insolvency Resolution

Process (CIRP) initiated by ASREC (India) Limited, Respondent No. 1/

Financial Creditor under Section 7 of the Insolvency and Bankruptcy Code,

2016 (in short, the "Code").

2. The CIRP application was filed before the Adjudicating Authority (in

short, the "AA") on the ground that the CD has defaulted to repay the

Financial Creditor an amount of Rs. 21,37,94,606/- (Rupees Twenty-One

Crore Thirty-Seven Lakhs Ninety-Four Thousand Six Hundred Six only) as on

30.09.2022.

3. The brief facts of the case are as follows:

(i) Barracks Retail India Pvt. Ltd./CD was incorporated on 25.01.2016,

under the Companies Act, 2013, with its registered office in Mumbai,

focusing on garment manufacturing. In early 2017, CD sought funding

from Bharat Co-operative Bank (Mumbai) Limited (in short the "Bank")

to support its operations. On 21.03.2017, the bank sanctioned a Term

Company Appeal (AT) (Ins.) No. 139 of 2024 -3-

Loan of Rs. 5 crores for capital expenses, repayable through monthly

EMIs, along with a Rs. 25 lakh Cash Credit limit for working capital.

To secure these facilities, the CD pledged assets, including 41 non-

agricultural plots in Vikramgarh, Maharashtra, on 30.03.2017, and

executed a series of security documents, including a Deed of Mortgage,

hypothecation agreements, and personal guarantees.

(ii) On 08.06.2018, the Bank reviewed the existing loans, renewing them

and, on 14.08.2018, approving an additional loan of Rs.1.91 crore to

facilitate Barracks Retail's acquisition of Eye Catch Fashions Pvt. Ltd.,

a financially distressed garment company. The Bank advised the CD

to invest 25% of Eye Catch's asset value to prevent an NPA

classification. The bank arranged a transfer of Rs. 5.25 crore directly

to Eye Catch from Barracks Retail's account to avoid NPA status.

Subsequently, another Rs. 2.5 crore was transferred based on a verbal

understanding and an unregistered sale deed, yet Eye Catch's

promoters abandoned the business, leaving the CD liable for the Rs.

5.25 crore without gaining ownership of Eye Catch's assets, adding to

CD's debt burden without the intended business advantage.

(iii) On the request of CD dated 20.12.2019 the Bank sanctioned revised

financial facilities to the CD vide sanction letter dated 17.03.2020 as

detailed below:

Facilities Amount in lacs Sanction letter

Cash Credit 300 BCB/NSW/327/2020 WCTL-1 800 dated 17.03.2020 FITL of WCTL-1 122.90 WCTL-2 15.41 FITL of WCTL-2 1.65 Term loan 505.40

Company Appeal (AT) (Ins.) No. 139 of 2024 -4-

FITL of existing 74.65 term loan WCTL-3 19.97 FITL of WCTL-3 2.13

(iv) With the onset of COVID-19, as per RBI Guidelines the Bharat Co-

operative Bank provided temporary relief, including an additional

facility of Rs. 9,48,531/- on 01.09.2020 to cover interest costs, and

allowing CD to defer payments. The CD through its letter of

acknowledgement of debts, documents and securities and consent of

borrowers, joint borrowers and sureties dated 01.09.2020 had

acknowledged the availing of credit facilities.

(v) The Bank vide a letter dated 07.12.2020 issued a notice to CD recalling

the entire outstanding along with further interest @10% from

01.01.2021 till clearance of entire outstanding loan amount within 7

days from the receipt of the notice. The Bank further informed the CD

that failing payment of entire outstanding the bank shall be constrained

to initiate recovery action under SARFAESI Act and/or under Section

84 of Multi-State Co-Operative Societies Act, 2002 or under any law

under force.

(vi) The bank further informed the CD vide the aforesaid letter that

Inspecting officials of RBI on 31.10.2020, had classified CD's account

as NPA as on 01.11.2019, as the restructuring of loan account was done

by the Bank, without getting cleared the entire outstanding Interest/

Overdue Principal amount. As on date of declaration of the NPA i.e.

01.11.2019 the aggregate principal outstanding amount of the CD was

Rs 16,21,73,514/-.

Company Appeal (AT) (Ins.) No. 139 of 2024 -5-

(vii) The Bank issued a notice to recall the facilities on 19.03.2021 under

Section 13(2) of SARFAESI Act 2002 requiring the CD to pay all the

outstanding under all credit facility accounts within 60 days from the

date of receipt of the said notice.

(viii) The Bank vide assignment agreement dated 25.03.2021, assigned CD's

loans in favour of ASREC (India) Limited / Respondent-1, which

assumed debt recovery rights including all agreements, deeds and

documents thereto and all collateral and underlying security Interests

and or pledges created to secure and /or guarantees issued in respect

of, the repayment of loans.

(ix) Thereafter, the Respondent-1 filed an application under Section 7 of the

Code on 18.02.2023, for initiating CIRP against the CD, citing a default

date of 31.10.2020. The CD objected to the said petition invoking

Section 10A of the Code, which prohibits CIRP for defaults during the

COVID relief period. ASREC/R-1 amended its application, changing the

default date to 02.08.2019, arguing it predates the COVID exemption.

The Adjudicating Authority allowed the application of Respondent-1

and allowed necessary amendments to CIRP petition vide their orders

dated 13.10.2023 and 24.11.2023.

(x) On 09.01.2024, the Adjudicating Authority admitted the CIRP

application of Respondent-1, accepting the amended default date of

02.08.2019.

(xi) The Appellant contends that the NCLT disregarded evidence and failed

to consider objections, particularly the Section 10A exemption and

Company Appeal (AT) (Ins.) No. 139 of 2024 -6-

conflicting default dates, and hence has filed this appeal for setting

aside the AA's order on procedural and legal grounds.

Submissions of the Appellant

4. Ld. Counsel for the appellant submits that this appeal is filed by Mr.

Puneet P. Bhatia, the suspended director of Barracks Retail India Private

Limited, under Section 61 of the Insolvency & Bankruptcy Code, 2016 (IBC).

The appellant contends that the Impugned Order should be set aside due to

significant errors in fact and law.

5. The counsel for the appellant argues that the default date cited by the

respondent falls within the period protected under the IBC's "10A" provision,

which shields certain defaults occurring during the COVID-19 pandemic from

CIRP proceedings. This period, introduced as a regulatory relief measure by

the Government of India, was aimed at alleviating the financial distress,

businesses faced due to the pandemic and was enacted specifically to prevent

companies from being pushed into insolvency. As the alleged default falls

within this "10A" period, the appellant asserts that the petition under Section

7 of the IBC is not maintainable.

6. It is further submitted by the counsel for the appellant that the Bank

sanctioned two distinct credit facilities for CD. The first facility was granted

on 21.03.2017, comprising a fresh term loan of INR 10 crores and a new cash

credit limit of INR 8 crores. Subsequently, on 18.08.2018, the second facility

was sanctioned, involving a renewal of the INR 8 crore cash credit limit and

the cancellation of an undisbursed loan amount of INR 389.40 lakhs. Both

Company Appeal (AT) (Ins.) No. 139 of 2024 -7-

facilities were restructured once again on 17.03.2020, when the Bank

sanctioned an additional cash credit limit of INR 3 crores, along with a

restructuring of the existing cash credit and term loan facilities. This

restructuring was conducted to adapt to the evolving financial needs of the

CD.

7. The counsel for the appellant highlights that the Bank deferred interest

payments for the period from 01.03.2020 to 31.08.2020 in compliance with

the Reserve Bank of India's (RBI) COVID-19 Regulatory Package. This

deferment aimed to provide relief to borrowers during the pandemic. Since the

original date of default cited by the respondent allegedly arose post-

17.03.2020, during the moratorium period, the appellant contends that it

should be exempt from CIRP initiation as per Section 10A of the IBC. The

protective provisions of Section 10A explicitly cover defaults occurring during

the pandemic, rendering the initiation of CIRP against CD unwarranted under

law.

8. The counsel for the appellant stated that different dates of default have

been shown in different documents. In the notice dated 19.03.2021 under

Section 13(2) of SARFAESI Act, the date of NPA is mentioned as 31.03.2020.

In the Assignment of Debt documents, the date of Default as accepted by the

Respondent is mentioned as 31.10.2020. Further, the counsel for the

appellant asserted that the respondent has attempted to substantiate its

claims by referencing a recall notice issued on 07.12.2020, as well as the date

of default (31.10.2020) recorded in the National E-Governance Services

Limited (NESL) database.

Company Appeal (AT) (Ins.) No. 139 of 2024 -8-

9. It is vehement submission of the Appellant that all these dates fall

within the protective "10A" period established under the IBC. Consequently,

any attempt to proceed with the CIRP based on these dates contradicts the

specific protections provided by the IBC during the pandemic. The appellant

further relies upon the Plus Corporate Ventures Private Limited v.

Transnational Growth Fund Limited Company Appeal (AT) (Insolvency)

No. 1270 of 2022, wherein this Appellate Tribunal ruled that defaults within

the Section 10A period could not justify initiating CIRP under the IBC.

10. The appellant's counsel states that 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. This unilateral

alteration is both inappropriate and inconsistent with the terms of the

restructuring facility dated 17.03.2020, which included a fresh credit limit

and a distinct date of default. By introducing a new date of default without

the appellant's agreement, the respondent disregarded the contractual

obligations binding on both parties. The appellant cites the judgement of this

Appellate Tribunal in Pradeep Madhukar More v. Central Bank of India

Company Appeal (AT) (Insolvency) No. 837 of 2023, which holds that

restructuring dates, once established, remain legally binding on both parties

and any subsequent change must follow due legal process.

11. Furthermore, counsel for the appellant stated that the respondent's

attempt to justify its claims by relying on the recall letter dated 07.12.2020 is

legally flawed. The RBI guidelines stipulate that it is the lending bank that

has the authority to classify accounts as Non-Performing Assets (NPA), rather

Company Appeal (AT) (Ins.) No. 139 of 2024 -9-

than the RBI. The language within the recall letter acknowledges the

restructuring/rescheduling that occurred, thereby binding both parties to the

restructured terms. Thus, the appellant argues that the date of default could

not reasonably predate the formal restructuring. Consequently, the

respondent's claims regarding the default date of 02.08.2019 lack legal

validity in light of the binding nature of the restructuring terms agreed upon

by both parties.

12. The counsel for the appellant submits that the Impugned Order issued

by the Ld. Adjudicating Authority is fundamentally flawed due to the omission

of critical evidence, notably the recall notice dated 07.12.2020, from its

findings. This omission, coupled with the incorrect reliance on the alleged

default date of 02.08.2019, undermines the integrity of the Impugned Order

and suggests a misinterpretation of the facts presented. The appellant

contends that the failure to consider this key evidence has resulted in a legally

untenable decision, and therefore, requests the Hon'ble Tribunal to set aside

the Impugned Order on this ground.

13. The counsel also submitted that the RBI Circular dated 01.07.2019

clarifies that it is the bank which declares the account as NPA and not the

RBI, in this regard he invited the attention to para 2.2.10 of the aforesaid

circular, which is reproduced below:

"2.2.10 NPA Reporting to Reserve Bank

Banks should report the figures of NPAs to the Regional Office of the

Reserve Bank at the end of each year within two months from the

close of the year in the prescribed proforma given in the Annex-2."

Company Appeal (AT) (Ins.) No. 139 of 2024 -10-

14. Finally, summing up his arguments counsel for the appellant stated

that the Ld. Adjudicating Authority has disregarded the impact of the RBI's

COVID-19 Regulatory Packages and Section 10A of the IBC, which were

designed to provide temporary relief to businesses facing unprecedented

economic hardships due to the pandemic. The protections afforded by Section

10A should have precluded the initiation of CIRP based on any defaults falling

within this period. The omission of these protections in the Impugned Order

amounts to a substantive misinterpretation of both regulatory intent and

statutory protections. Therefore, the appellant submits that the Impugned

Order should be set aside in the interest of justice.

Submissions of the Respondent

15. The counsel for respondent submits that first issue to be determined is

whether date of default falls during 10A exemption period or not? In this

regard he mentioned the following:

i. The CD was irregular in making payments and made an application to

the Bank on 21.12.2019 for restructuring of their loan facilities. The

Bank issued Sanction Letter dated 17.03.2020 to restructure the loan

accounts subject to CD satisfying the terms and conditions of the

sanction letter.

ii. The terms and conditions of the Sanction Letter dated 17.03.2020

provided authority to the Bank to revoke said sanction letter dated

17.03.2020 and facilities granted thereunder, at any time, if the CD

Company Appeal (AT) (Ins.) No. 139 of 2024 -11-

defaulted in fulfilling the terms and conditions of the said sanction

letter. The para 2 of the bank sanction letter is extracted below:

2. The Bank without assuming any liability, shall be entitled to:

i. withhold or cancel or revoke the credit facility/ies at once, if it is found hereafter that any information documents/ particulars furnished is /are incorrect, forged/misleading. Likewise, the Bank shall be entitled to discontinue the facilities in case of material changes in the circumstances/conditions which in the opinion of Bank will be / likely to be prejudicial to the interest of the bank. ii. discontinue the facility/ies and/or withhold further disbursement without assigning any reason, if there is a breach of any of the terms and conditions stipulated or the terms and conditions on which the facility/ies is/are sanctioned are not complied.

iii. revoke, cancel, alter, modify or change at any time any of the facility/ies sanctioned at its sole discretion without assigning any reasons for the same. Likewise the Bank shall also be entitled to alter, modify or change at any time any of the terms and conditions of the sanction at its sole discretion without assigning any reasons."

16. One of the mandatory terms of the sanction letter is the promoters of

CD were supposed to bring in Promoter's contribution i.e. 15% of the Bank's

sacrifice. This is a mandatory condition as prescribed under the RBI IRAC

guidelines.

17. The counsel submitted that the Covid 19 epidemic started from March

2020 onwards. The RBI conducted inspection of the FC in September 2020-

October 2020 for the financial year FY 2019-20. During the inspection by RBI,

it was found that Promoter of CD never brought in his contribution in

furtherance of the restructuring as mentioned in the Sanction Letter dated

17.03.2020 and hence, RBI found CD ineligible for any restructuring of their

loan facilities.

Company Appeal (AT) (Ins.) No. 139 of 2024 -12-

18. Pursuant to inspection, Bank issued letter dated 07.12.2020 to the CD

and its promoters communicating that the CD was ineligible for restructuring

of their loan facilities and Bank recalled all the loan facilities granted to CD.

The promoters of CD never responded to the said letter dated 07.12.2020.

19. The counsel further stated that the Bank had to necessarily abide by

the findings and observations of the regulatory authority ie. RBI and hence

the loan account of CD was declared as NPA on 01.11.2019, as determined

by RBI. The date of default is 90 days prior to date of NPA, accordingly date

of default was fixed as 02.08.2019.

20. The counsel argued that the promoter was well acquainted with all

these communications, but he is trying to take advantage of the exemption

period, despite being in default all the time. Since the promoter did not fulfill

the terms and conditions of the Sanction letter dated 17.03.2020, the same

did not survive and stood revoked and cancelled vide letter dated 07.12.2020.

Therefore, the date of NPA was restored back to 01.11.2019 and consequently

the date of default restored to 02.08.2019 i.e. original date of default.

21. In regard to the issue about the amendment of date of default

mentioned in application under Section 7 of the Code, the counsel for

Respondent No. 1 made the following submissions:

i. The counsel stated that RBI conducted inspection of all the loan

accounts maintained with FC for financial year 2019-20 taking into

consideration financials till 31.03.2020. Upon inspection, the loan

Company Appeal (AT) (Ins.) No. 139 of 2024 -13-

accounts of Appellant CD were classified as "Doubtful Asset" as on

31.03.2020.

ii. Doubtful Asset as defined in RBI Master Circular on Asset

Classification are the loan accounts which have remained Non-

Performing Asset for more than 12 months from the date of declaration

of loan accounts as NPA. The relevant para is extracted below:

"3.2.3 Doubtful Assets

With effect from March 31, 2005, an asset is required to be classified as doubtful, if it has remained NPA for more than 12 months. For Tier I banks, the 12-month period of classification of a substandard asset in doubtful category is effective from April 1, 2009. As in the case of sub- standard assets, rescheduling does not entitle the bank to upgrade the quality of an advance automatically. A loan classified as doubtful has all the weaknesses inherent as that classified as sub-standard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable."

iii. He submitted that the Bank issued letter dated 07.12.2020 to CD

informing that their loan accounts have been classified as NPA by RBI

officials on 31.10.2020 as of 01.11.2019. Since the date of default is

calculated from 90 days prior to the date of NPA ie. 01.11.2019, the

actual date of default committed by CD was on 02.08.2019.

iv. The counsel further stated that it is most important to note that RBI

had declared the loan accounts of CD as NPA as of 01.11.2019 during

inspection and risk assessment of Bharat Co-operative Bank Limited

Company Appeal (AT) (Ins.) No. 139 of 2024 -14-

and the same will prevail over other dates mentioned in the present

appeal as the date of NPA.

v. The counsel further invited our attention to the Hon'ble Supreme

Court's judgment in Laxmi Pat Sunara vs. Union Bank of India &

Another (2021) 8 SCC 481 wherein in Paragraph - 43 the Court has

held that original date of default does not change merely because of

human error. It has been further held by the Hon'ble Supreme Court in

the said judgment that the period of limitation would be attracted from

the date when the default occurs and not from the date of declaration

of NPA. Therefore, the date of NPA cannot be taken to be the date of

default for the purpose of limitation. The extract of Para 43 of Laxmipat

Surana (supra) is extracted below:

"Ordinarily, upon declaration of the loan account/debt as NPA that

date can be reckoned as the date of default to enable the financial

creditor to initiate action under Section 7 IBC. However, Section 7

comes into play when the corporate debtor commits "default".

Section 7, consciously uses the expression "default"- not the date of

notifying the loan account of the corporate person as NPA. Further,

the expression "default" has been defined in Section 3(12) to mean

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. In cases where

the corporate person had offered guarantee in respect of loan

transaction, the right of the financial creditor to initiate action

against such entity being a corporate debtor (corporate guarantor),

Company Appeal (AT) (Ins.) No. 139 of 2024 -15-

would get triggered the moment the principal borrower commits

default due to non-payment of debt. Thus, when the principal

borrower and/or the (corporate) guarantor admit and acknowledge

their liability after declaration of NPA but before the expiration of

three years therefrom including the fresh period of limitation due to

(successive) acknowledgments, it is not possible to extricate them

from the renewed limitation accruing due to the effect of Section 18

of the Limitation Act. Section 18 of the Limitation Act gets attracted

the moment acknowledgment in writing signed by the party against

whom such right to initiate resolution process under Section 7 IBC

ensures. Section 18 of the Limitation Act would come into play every

time when the principal borrower and/or the corporate guarantor

(corporate debtor), as the case may be, acknowledge their liability

to pay the debt. Such acknowledgment, however, must be before

the expiration of the prescribed period of limitation including the

fresh period of limitation due to acknowledgment of the debt, from

time to time, for institution of the proceedings under Section 7 IBC.

Further, the acknowledgment must be of a liability in respect of

which the financial creditor can initiate action under Section 7 IBC."

22. The counsel for respondent then argued on the issue, whether date of

NPA determined by the RBI can be overturned merely because of inadvertent

misrepresentation of an officer. In this regard he made the following

submissions:

i. The counsel stated that Point 2.2.7.29 of RBI IRAC guidelines sets out

certain conditions which are to be complied with for restructuring of

loan accounts. The same is extracted below:

Company Appeal (AT) (Ins.) No. 139 of 2024 -16-

"2.2.7.29:-However, these benefits will be available subject to compliance with the following conditions:

(v) Promoters' sacrifice and additional funds brought by them should be a minimum of 15% of banks' sacrifice."

ii. The counsel submitted that RBI being a regulatory authority

determined that compliance to the sanction letters were not met and

hence the CD was ineligible for restructuring and to that extent

sanction letter dated 17.03.2020 became void ab-initio and the same

was not tenable in the eyes of law. Therefore, the date of NPA became

01.11.2019 and the original date of default would be 02.08.2019 i.e. 90

days prior the date of NPA as per RBI IRAC Guidelines.

23. The counsel further stated that the Corporate Debtor neither objected

to the amendment sought by Respondent No. 1 in date of default nor they

preferred any appeal before the Hon'ble NCLAT against the amendment

orders. Pursuant to filing of reply by the Corporate Debtor before Ld.

Adjudicating Authority in original C.P. (IB) No. 280/2023, Respondent No. 1

sought liberty from the Ld. Adjudicating Authority to amend the company

petition and the same was granted to Respondent No. 1. The Corporate Debtor

was also granted liberty to contest the amendment, however, the Corporate

Debtor never filed a reply or formally objected to the amendment application.

The relevant orders of the AA dated 13.10.2023 and 24.11.2023 passed in

C.P. (IB) No. 280 of 2023 are extracted below:

"ORDER dated 13.10.2023 C.P. (IB)/280(MB)2023

Company Appeal (AT) (Ins.) No. 139 of 2024 -17-

1) Mr. Sachin Daga, Ld. Counsel for the Financial Creditor and Mr. Sandeep Bajaj, Ld. Counsel for the Corporate Debtor are present.

2) Counsel for the Financial Creditor submits that Affidavit in Rejoinder has been filed and placed on record; however, Ld. Counsel for the Corporate Debtor takes objection contending that the Financial Creditor is attempting to modify its Original case by way of Affidavit in Rejoinder.

3) Accordingly, Counsel for the Financial Creditor seeks leave of this Bench to amend the Company Petition thereby amending Form 1 Part IV, to deal with the objections. Leave as prayed is allowed. The Respondent shall be at liberty to contest the amendment, on merits.

4) Financial Creditor is directed to carry out the necessary amendment forthwith and the amended copies be served on the other side and parties concerned, well before the adjourned date.

5) Corporate Debtor shall file and place on record Affidavit in Reply, if they so desire, by duly serving a copy to the other side well in advance.

6) Stand over to 24.11.2023, for further consideration and hearing."

24.11.2023:- Both the parties are present.

2. This bench permits Financial Creditor to file an amendment

affidavit, the Corporate Debtor seek one (1) week time which

is granted to file reply.

3. Listed on 08.12.2023."

(Emphasis Supplied)

24. The counsel for respondents submitted that Appellant's had ample

opportunity to object to the amendment application on further hearings,

however, they did not object or formally file reply to the amendment

Company Appeal (AT) (Ins.) No. 139 of 2024 -18-

application of Respondent No. 1. Furthermore, the Ld. Adjudicating Authority

while passing the impugned judgment dated 09.01.2024 has considerably

dealt with the arguments of both parties on amendment carried out by

Respondent No. 1 and has upheld the same.

25. The counsel submitted that, when the Appellant's company never

objected when the permission to carry out amendment was sought initially,

then the Appellant is barred from raising objections regarding such

amendments at the stage of Appeal. He submitted that in light of the

abovementioned submissions, the present company appeal filed before the

Hon'ble Court deserves to be dismissed with costs.

Analysis and Findings

26. We have heard the parties in detail and perused the records. Parties

have also filed their written submissions which has been taken on record.

27. Upon careful examination of the facts, evidence, and submissions

presented in this appeal, it is evident that the core issue revolves around the

validity of the amended default date cited by the respondent and the

applicability of Section 10A of the Code. The appellant has challenged the

order of the Adjudicating Authority, which admitted the Corporate Insolvency

Resolution Process (CIRP) application filed by the respondent. The appellant

contends that the initial default date of 31.10.2020 falls within the

moratorium period under Section 10A, rendering the CIRP application invalid.

The respondent, however, argues that the default date was subsequently

Company Appeal (AT) (Ins.) No. 139 of 2024 -19-

amended to 02.08.2019, predating the Section 10A period, and thus the CIRP

application is maintainable.

28. There are two issues involved for the determination in the present

appeal: -

a) Whether the Date of Default can be changed after filing the petition

under Section 7 of the Code?

b) Whether in the present case the date of default has been correctly

identified?

We examine both these issues in detail in subsequent paras.

29. The Corporate Debtor had availed various credit facilities from Bharat

Cooperative Bank through successive sanction letters dated 21.03.2017,

14.08.2018, and 11.03.2020. Despite these agreements and restructuring

efforts, the CD failed to meet payment deadlines, resulting in the debt claimed

by ASREC.

30. ASREC (India) Limited/R-1 initially filed its Section 7 petition stating a

default date of 31.10.2020, which was later amended to 02.08.2019. The

tribunal permitted this amendment on 13.10.2023. The revised date is crucial

as it aims to establish that the default occurred outside the Section 10A

exemption period (introduced to protect defaults during the COVID-19

pandemic).

31. In interpreting whether the National Company Law Tribunal (NCLT) can

allow amendments to the date of default in applications filed under Section 7

Company Appeal (AT) (Ins.) No. 139 of 2024 -20-

of the Insolvency and Bankruptcy Code (IBC), we have seen the Judgement of

Hon'ble Supreme Court in Dena Bank v. C. Shivakumar Reddy and Another

[Citation: (2021) 10 SCC 330]. The relevant paragraphs 26, 73, 74, 75, 76,

77, 91, 93 and 144 are extracted below:

"26. A third issue which arises for adjudication of this Court

is, whether there is any bar in law to the amendment of

pleadings, in a Petition under Section 7 of the IBC, or to the filing

of additional documents, apart from those filed initially, along

with the Petition under Section 7 of the IBC in Form-1.

73. Since a Financial Creditor is required to apply under

Section 7 of the IBC, in statutory Form 1, the Financial Creditor

can only fill in particulars as specified in the various columns of

the Form. There is no scope for elaborate pleadings. An

application to the Adjudicating Authority (NCLT) under Section 7

of the IBC in the prescribed form, cannot therefore, be compared

with the plaint in a suit. Such application cannot be judged by

the same standards, as a plaint in a suit, or any other pleadings

in a Court of law.

74. Section 7(3) requires a financial creditor making an

application under Section 7(1) to furnish records of the default

recorded with the information utility or such other record or

evidence of default as may be specified; the name of the

resolution professional proposed to act as an Interim Resolution

Professional and any other information as may be specified by

the Insolvency and Bankruptcy Board of India.

Company Appeal (AT) (Ins.) No. 139 of 2024 -21-

75. Section 7(4) of the IBC casts an obligation on the

Adjudicating Authority to ascertain the existence of a default

from the records of an information utility or on the basis of other

evidence furnished by the financial creditor within fourteen

days of the receipt of the application under Section 7. As per the

proviso to Section 7(4) of the IBC, inserted by amendment, by

Act 26 of 2019, if the Adjudicating Authority has not ascertained

the existence of default and passed an order within the

stipulated period of time of fourteen days, it shall record its

reasons for the same in writing. The application does not lapse

for non-compliance of the time schedule. Nor is the Adjudicating

Authority obliged to dismiss the application. On the other hand,

the application cannot be dismissed, without compliance with

the requisites of the Proviso to Section 7(5) of the IBC.

76. Section 7(5)(a) provides that when the Adjudicating

Authority is satisfied that a default has occurred, and the

application under sub- section (2) of Section 7 is complete and

there is no disciplinary proceeding pending against the

proposed resolution professional, it may by order admit such

application. As per Section 7(5)(b), if the Adjudicating Authority

is satisfied that default has not occurred or the application

under sub-Section (2) of Section 7 is incomplete or any

disciplinary proceeding is pending against the proposed

resolution professional, it may, by order, reject such application,

provided that the Adjudicating Authority shall, before rejecting

Company Appeal (AT) (Ins.) No. 139 of 2024 -22-

the application under sub- section (b) of Section 5, give notice to

the applicant, to rectify the defects in his application, within 7

days of receipt of such notice from the Adjudicating Authority.

77. The Corporate Insolvency Resolution Process commences

on the date of admission of the application under sub-section (5)

of Section 7 of the IBC. Section 7(7) casts an obligation on the

Adjudicating Authority to communicate an order under clause

(a) of sub-section (5) of Section 7 to the financial creditor and the

corporate debtor and to communicate an order under clause (b)

of sub-section (5) of Section 7 to the financial creditor within

seven days of admission or rejection of such application, as the

case may be. Sections 8 and 9 of IBC pertain to Insolvency

Resolution by an operational creditor and are not attracted in

the facts and circumstances of this case. Section 10 pertains to

initiation of Corporate Insolvency Resolution Process by the

Corporate Debtor itself, and is also not attracted in the facts and

circumstances of the case.

91. On a careful reading of the provisions of the IBC and in

particular the provisions of Section 7(2) to (5) of the IBC read

with the 2016 Adjudicating Authority Rules there is no bar to

the filing of documents at any time until a final order either

admitting or dismissing the application has been passed.

93. Furthermore, the proviso to Section 7(5)(b) of the IBC

obliges the Adjudicating Authority to give notice to an applicant,

Company Appeal (AT) (Ins.) No. 139 of 2024 -23-

to rectify the defect in its application within seven days of

receipt of such notice from the Adjudicating Authority, before

rejecting its application under Clause (b) of sub-section (5) of

Section 7 of the IBC. When the Adjudicating Authority calls upon

the applicant to cure some defects that defect has to be rectified

within seven days. There is no penalty prescribed for inability

to cure the defects in an application within seven days from the

date of receipt of notice, and in an appropriate case, the

Adjudicating Authority may accept the cured application, even

after expiry of seven days, for the ends of justice.

144. 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.

Needless however, to mention that depending on the facts and

circumstances of the case, when there is inordinate delay, the

Adjudicating Authority might, at its discretion, decline the

request of an applicant to file additional pleadings and/or

documents, and proceed to pass a final order. In our considered

view, the decision of the Adjudicating Authority to entertain

and/or to allow the request of the Appellant Bank for the filing

of additional documents with supporting pleadings, and to

Company Appeal (AT) (Ins.) No. 139 of 2024 -24-

consider such documents and pleadings did not call for

interference in appeal."

(Emphasis Supplied)

32. In the aforesaid case, Dena Bank sought to initiate insolvency

proceedings against a corporate debtor by filing a Section 7 application with

the NCLT. The bank' s petition was based on the default date related to a Non-

Performing Asset (NPA) declared years earlier. Dena Bank later sought to rely

on new documents and amendments. Hon'ble Supreme Court vide judgement

(supra) ruled that amendments to the application or submission of additional

documents could be made before the final order admitting or rejecting the

petition under Section 7. The Court clarified that the law does not explicitly

bar such amendments, as they support the IBC's goal of comprehensive debt

recovery. However, the Court noted that such amendments should not

manipulate the limitation period, but may reflect new acknowledgments of

debt or judgments creating a fresh cause of action.

33. The Dena Bank judgment (supra) explicitly states that in the

proceedings under the CIRP before the NCLT, there is no scope for elaborate

pleadings. An application to the Adjudicating Authority (NCLT) under Section

7 of the IBC in the prescribed form, cannot be compared with the plaint in a

suit. Such application cannot be judged by the same standards, as a plaint

in a suit, or any other pleadings in a Court of law. It further clarifies that

under the provisions of Section 7 of the Code, NCLT can allow amendments

to pleadings under the CIPR proceedings before the final order is passed.

Company Appeal (AT) (Ins.) No. 139 of 2024 -25-

34. We observe that in the present case also, the Tribunal noted the

updated date of default as 02.08.2019, and 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 amendment

of pleadings in this case was allowed by the AA, which provided for the date

of default as 02.08.2019.

35. The appellant has cited the judgement of this Appellate tribunal in Plus

Corporate Ventures Private Limited vs. Transnational Growth Fund Limited,

Company Appeal (AT) (Insolvency) No. 1270 of 2022, wherein it was held that

defaults occurring during the COVID-19 moratorium period, covered under

Section 10A of the Code are protected from Corporate Insolvency Resolution

Process (CIRP) initiation. The appellant argues that their default should also

fall within this COVID-19 moratorium and be protected by Section 10A. They

assert that the default occurred within the period specified under Section 10A,

thus rendering the initiation of CIRP legally barred.

36. However, in the present case, Unlike Plus Corporate Ventures (Supra),

where the default date clearly fell within the Section 10A period, there is

dispute in the current case, over whether the default indeed occurred during

this period. The respondent asserts that the default date was August 2, 2019,

which predates the Section 10A moratorium period. This amended default

date, places the present case outside the protective scope of Section 10A. As

such, the ratio of Plus Corporate Ventures to this case does not apply.

37. The appellant has also placed reliance on this Appellate Tribunal's

judgement in Pradeep Madhukar More vs. Central Bank of India, Company

Company Appeal (AT) (Ins.) No. 139 of 2024 -26-

Appeal (AT) (Insolvency) No. 837 of 2023, decided on September 26, 2023, to

support their argument that a new default date should be considered

following any loan restructuring. In Pradeep Madhukar More (Supra) it was

held that a restructuring agreement creates a new set of obligations that

supersede the original terms, setting a fresh default timeline based on the

restructured agreement. The appellant argues that this principle should apply

in their case, as the loan facilities were restructured in March 2020, and

therefore any default date prior to this restructuring should be rendered

irrelevant.

38. In contrast to Pradeep Madhukar More, where it was held that the

restructuring agreement as the authoritative source for establishing default,

the present case presents a different scenario. The respondent claims that the

original default date was August 2, 2019, before the restructuring agreement.

Their contention is that restructuring does not reset the default timeline, but

merely acknowledges a pre-existing default. We observe that the documentary

evidence cited in Pradeep Madhukar More clearly supported the restructuring

date as a new timeline for default. However, we observe that in the present

case, there were repeated restructuring of the loan and the appellant failed to

fulfil its obligations under the restructuring, which was the essential

condition for the restructuring leading to is failure. Accordingly, as per the

clauses of the restructuring the bank had recalled the loan facility and after

due notice filed SARFAESI case for loan recovery. The failure of restructuring

therefore did not lead to any change in date of default.

Company Appeal (AT) (Ins.) No. 139 of 2024 -27-

39. The appellant further argued that the debt arrangement in this case

should fall under the blanket protections of the Section 10A moratorium, as

payments were restructured in March 2020 due to the COVID-19 pandemic.

This interpretation is in consonance with the rationale in several judgments,

including Ramesh Kymal vs. Siemens Gamesa Renewable Power Private

Limited, (2021) 3 SCC 224, and Life Insurance Corporation of India vs. Sanjeev

Builders Pvt. Ltd. & Anr., (2022) SCC OnLine SC 1128. Both of these Supreme

Court rulings emphasized that Section 10A provides broad protection for

defaults occurring during the COVID-19 period, intending to shield financially

distressed businesses from insolvency proceedings caused by the pandemic.

40. Yet, for the Section 10A protection to apply here, the appellant must

demonstrate a direct link between the default and the COVID-19 impact,

aligning with the findings in Ramesh Kymal and Sanjeev Builders. In this case,

the respondent's contention that the original default date was August 2, 2019,

prior to the pandemic, suggests that the default was unrelated to COVID-19,

and therefore falls outside Section 10A's scope. The appellant's argument is

further complicated by the bank's actions, as the restructuring implies

acknowledgment of the pre-pandemic default rather than a fresh default

related to COVID-19. Thus, the respondent's substantiation of an August

2019 default date does not support the appellant's reliance on cases such as

Plus Corporate Ventures and Gaurav Hargovindbhai Dave vs. Asset

Reconstruction Company (India) Limited & Anr., (2019) 10 SCC 572, which

both reinforce Section 10A's protections, but do not support defaults pre-

dating the pandemic.

Company Appeal (AT) (Ins.) No. 139 of 2024 -28-

41. The appellant has also argued that the amendment of the default date

by the respondent constitutes procedural manipulation aimed at bypassing

Section 10A protections. However, it is seen that the amendment was duly

made during the CIRP proceedings before the AA, as per laid down procedure

following the principles of natural justice. The AA exercised its discretion

appropriately in allowing the amendment. The appellant has not

demonstrated any prejudice resulting from this amendment or any procedural

irregularities in the tribunal's decision to permit it.

42. We have seen from the above discussion that as per the provisions of

the Code, the NCLT is empowered to allow the parties to amend the pleadings

before the final orders in CIRP proceedings are passed. This would however

be subject to the procedure laid down in the code, as confirmed by Dena Bank

(Supra). We have observed that the Adjudication Authority in this case has

correctly followed the laid down process and the judgement of Dena bank

(supra) is applicable squarely in this case. We therefore hold that the

amendment of date of default has been correctly allowed by AA.

43. In determining the validity of the amended date of default, it is crucial

to examine the evidence relied upon by the respondent. It is seen that RBI as

the regulatory authority during the inspection of the bank found that

compliance with the conditions laid down in the sanction letters were not met

and hence the CD was ineligible for restructuring. Accordingly, due to non-

compliance the extent sanction letter dated 17.03.2020 became void ab-initio

and the same was not tenable in the eyes of law. Banks have to mandatorily

comply with the guidelines of the RBI in this regard. Therefore, the date of

Company Appeal (AT) (Ins.) No. 139 of 2024 -29-

NPA became 01.11.2019 and the original date of default would be 02.08.2019

i.e., 90 days prior the date of NPA as per RBI IRAC Guidelines. The amended

date of 02.08.2019 is also supported by records from the National E-

Governance Services Limited (NESL) database, which confirms the occurrence

of a default prior to the COVID-19 moratorium period.

44. Furthermore, the respondent's reliance on a recall notice issued on

07.12.2020 highlights the prolonged financial distress of the corporate debtor.

The appellant's argument that the restructuring agreement of March 2020

reset the default timeline lacks merit. Restructuring agreements, while

providing temporary relief, do not negate pre-existing defaults unless

explicitly stated. The evidence presented does not suggest that the

restructuring agreement created a fresh default timeline or nullified the earlier

default of 02.08.2019. This finding aligns with the principles established in

precedent cases, where the courts have consistently held that restructuring

efforts do not alter the classification of a loan as a Non-Performing Asset

(NPA), unless significant repayments or compliance with revised terms occur.

45. Section 10A of the IBC was introduced to provide relief to businesses

affected by the economic impact of the COVID-19 pandemic by precluding

insolvency proceedings for defaults occurring between 25.03.2020 and

25.03.2021. The appellant's reliance on Section 10A is premised on the initial

default date of 31.10.2020, which falls within this protected period. However,

the respondent's assertion of a default on 02.08.2019 predates the

moratorium period, rendering Section 10A inapplicable. The appellant has

failed to provide evidence that directly links the default to the impact of the

Company Appeal (AT) (Ins.) No. 139 of 2024 -30-

pandemic. The mere fact that restructuring occurred in March 2020 does not,

in itself, establish that the default arose during the Section 10A period.

Consequently, the appellant's reliance on precedents such as Plus Corporate

Ventures Pvt. Ltd. v. Transnational Growth Fund Ltd. is misplaced, as these

cases involved defaults unequivocally occurring within the protected period.

46. In addition, the appellant's claim that the restructuring agreement set

a new repayment schedule that superseded the earlier obligations is not

substantiated by the evidence on record. The Reserve Bank of India's

guidelines on restructuring do not suggest that pre-existing defaults are

automatically nullified by subsequent restructuring agreements. Rather,

restructuring serves to provide temporary relief, while acknowledging the

debtor's existing financial obligations. The documentation provided by the

respondent supports the conclusion that the default occurred on 02.08.2019

and that subsequent restructuring efforts did not negate this default.

47. The respondent's actions in initiating CIRP are consistent with the

objectives of the IBC, which prioritize the resolution of insolvency cases in a

time-bound manner to maximize asset value and ensure the equitable

treatment of creditors. The evidence presented demonstrates the corporate

debtor's prolonged financial incapacity and failure to fulfill its debt obligations

despite multiple opportunities to restructure and repay. The respondent, as a

financial creditor, is entitled to seek relief under the IBC when defaults are

established and substantiated by documentary evidence. The Hon'ble

Supreme Court's decision in Swiss Ribbons Pvt. Ltd. v. Union of India

Company Appeal (AT) (Ins.) No. 139 of 2024 -31-

underscores the importance of balancing creditor rights and debtor

obligations within the insolvency framework.

48. In light of the above discussion, we find no infirmity in the impugned

order of the Adjudicating Authority. The appeal is dismissed, pending IAs if

any, are disposed accordingly. There is no order as to costs.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

[Mr. Indevar Pandey] Member (Technical)

sa

Company Appeal (AT) (Ins.) No. 139 of 2024