Srei Equipment Finance Limited vs R S Kamthe Infrastructure ...

IN THE MATTER OF: SREI Equipment Finance Ltd. ...Appellant Versus R S Kamthe Infrastructure Developers Pvt. Ltd. ...Respondent

Present: For Appellant : Mr. Sanjeev Sen Sr. Advocate with Ms. Priyanka Vora, Mr. Prahalad Balaji, Ms. Jharna Singh and Ms. Simran Gupta, Advocates.

For Respondent : Mr. Ramchandra Madan, Mr. Tushar Nigam and Mr. Himanshu Yadav, Advocates for R-1.

ORDER

(Hybrid Mode)

28.01.2026: Heard counsel for the appellant and learned counsel for the

respondent.

2. This appeal has been filed by the financial creditor challenging the order

dated 02.11.2023 passed by the adjudicating authority (National Company

Law Tribunal, Mumbai Bench, Court - V) by which Section 7 application filed

by the financial creditor has been rejected as barred by Section 10A of the

Insolvency and Bankruptcy Code, 2016 (for short the IBC or the Code).

3. Learned counsel for the appellant challenging the order submits that in

Part IV of the Section 7 application, date of default was mentioned with

respect to both the contracts as 15.04.2021 and even though first default took

place on 15.01.2021, default continued after 10A period was over which was

relied in Part IV by the financial creditor. It is submitted that when default is

committed subsequent to 10A period, the financial creditor is not precluded from initiating Section 7 application. It is submitted that financial creditor is

not supposed to rush and file a Section 7 application on first date of default

and adjudicating authority had not adverted to Part IV of Section 7 application

in holding that application is barred by Section 10A.

4. Learned counsel for the respondent refuting the submissions of the

appellant submitted that the objection with regard to Section 10A was in fact

preliminary objection raised by respondent and adjudicating authority after

accepting the said objection has dismissed the application as barred by

Section 10A and has not gone into other pleas which was raised by the

corporate debtor. It is submitted that the default admittedly occurred within

the 10A period, which has rightly been taken note of the adjudicating

authority.

5. Learned counsel for the appellant in support of his submission has

placed reliance on the judgments of this Tribunal which we shall refer to

hereinafter.

6. We have considered the submissions of the counsel for the parties and

perused the records.

7. We need to first notice Part IV of the application under Section 7. Part

IV of the application provides as follows:

"PART - IV PARTICULARS OF FINANCIAL DEBT 1 TOTAL Contract No. Debt Granted Date of AMOUNT (Amount in Rs.) Disbursement OF DEBT GRANTED 178737 29,500,000 01-07-2019

Comp. App. (AT) (Ins.) No. 116 of 2024 2 of 11 DATE(S) OF 180822 24,450,000 28-09-2019 DISBURSE MENT Total 56,950,000

2 AMOUNT Total Claim Amount as on 12-08-2022: Rs. 7,28,54,918/-

CLAIMED (Rupees Seven Crore Twenty-Eight Lakh Fifty-Four TO BE IN Thousand Nine Hundred Eighteen Only) DEFAULT Particulars 178737 180822 Total AND THE DATE ON Installment 2,06,88,616 1,50,24,312 3,57,12,927 WHICH Overdue (Rs) THE Principal 74,39,564 1,74,94,212 3,57,12,927 DEFAULT Outstanding OCCURRED (Rs) (ATTACH THE Overdue 70,96,106 51,12,108 2,49,33,777 WORKINGS Charges (Rs) FOR Total (Rs) 3,52,24,286 3,76,30,632 7,28,54,918 COMPUTAT ION OF Contract no. 178737 AMOUNT AND DAYS Contr Date Amount Pre- During Post Days OF act on claimed Black Black Black of DEFAULT no. which to be in out Out Out Defa IN defaul default Period Period Period ult TABULAR t (In Rs.) occurr FORM) ed 1787 15- 1,14,616 - 1,14,6 - 574 37 01- 16 2021 1787 15- 11,43,00 - 11,43, - 543 37 02- 0 000 2021 1787 15- 11,43,00 - 11,43, - 515 37 03- 0 000 2021 1787 15- 11,43,00 - - 11,43,00 484 37 04- 0 0 2021 1787 15- 11,43,00 - - 11,43,00 454 37 05- 0 0 2021 1787 15- 11,43,00 - - 11,43,00 423 37 06- 0 0 2021

Comp. App. (AT) (Ins.) No. 116 of 2024 3 of 11 1787 15- 11,43,00 - - 11,43,00 393 37 07- 0 0 2021 1787 15- 11,43,00 - - 11,43,00 362 37 08- 0 0 2021 1787 15- 11,43,00 - - 11,43,00 331 37 09- 0 0 2021 1787 15- 11,43,00 - - 11,43,00 301 37 10- 0 0 2021 1787 15- 11,43,00 - - 11,43,00 270 37 11- 0 0 2021 1787 15- 11,43,00 - - 11,43,00 240 37 12- 0 0 2021 1787 15- 11,43,00 - - 11,43,00 209 37 01- 0 0 2022 1787 15- 11,43,00 - - 11,43,00 178 37 02- 0 0 2022 1787 15- 11,43,00 - - 11,43,00 150 37 03- 0 0 2022 1787 15- 11,43,00 - - 11,43,00 119 37 04- 0 0 2022 1787 15- 11,43,00 - - 11,43,00 89 37 05- 0 0 2022 1787 15- 11,43,00 - - 11,43,00 58 37 06- 0 0 2022 1787 15- 11,43,00 - - 11,43,00 28 37 07- 0 0 2022 Total 2,06,88, - 24,00, 1,82,88, 616 616 000

Contract No. 180822

Comp. App. (AT) (Ins.) No. 116 of 2024 4 of 11 Contr Date Amount Pre- During Post Days act on claimed Black Black Black of no. which to be in out Out Out Defa defaul default Period Period Period ult t (In Rs.) occurr ed 1808 15- 8,00,412 - 8,00,4 - 543 22 02- 12 2021 1808 15- 8,36,700 - 8,36,7 - 515 22 03- 00 2021 1808 15- 8,36,700 - - 8,36,700 484 22 04- 2021

1808 15- 8,36,700 - - 8,36,700 454 22 05- 2021 1808 15- 8,36,700 - - 8,36,700 423 22 06- 2021 1808 15- 8,36,700 - - 8,36,700 393 22 07- 2021 1808 15- 8,36,700 - - 8,36,700 362 22 08- 2021 1808 15- 8,36,700 - - 8,36,700 331 22 09- 2021 1808 15- 8,36,700 - - 8,36,700 301 22 10- 2021 1808 15- 8,36,700 - - 8,36,700 270 22 11- 2021 1808 15- 8,36,700 - - 8,36,700 240 22 12- 2021 1808 15- 8,36,700 - - 8,36,700 209 22 01- 2022

Comp. App. (AT) (Ins.) No. 116 of 2024 5 of 11 1808 15- 8,36,700 - - 8,36,700 178 22 02- 2022

1808 15- 8,36,700 - - 8,36,700 150 22 03- 2022 1808 15- 8,36,700 - - 8,36,700 119 22 04- 2022 1808 15- 8,36,700 - - 8,36,700 89 22 05- 2022 1808 15- 8,36,700 - - 8,36,700 58 22 06- 2022 1808 15- 8,36,700 - - 8,36,700 28 22 07- 2022 Total 1,50,24, 16,37, 1,33,87, 312 112 200

Date of Default: 178737 15th April 2021 180822 15th April 2021

The Financial Creditor states that the default is continuing in nature. The Corporate Debtor has failed and neglected to repay the outstanding amounts due and payable to the Financial Creditor. The Financial Creditor states that every month, the payment schedule by way of an instalment is falling due and even though the instalment amounts are to be paid, the Corporate Debtor has failed to pay the instalments and in fact Section 10A of the Insolvency and Bankruptcy Code, 2016 does not extinguish the aspect of 'Debt' and 'Default' in the eve of Law."

8. The amount claimed in Part IV was Rs.7,28,54,918/- and with respect

to two contracts; contract No. 178737 and 180822, the dates of default were

mentioned in tabular form. It is true that the first date of default with regard

to contract No. 178737 is 15.01.2021 and first date of default of contract No.

180822 is 15.02.2021 but when we look into the table, default continues on

Comp. App. (AT) (Ins.) No. 116 of 2024 6 of 11 15.04.2021 and thereafter and the date of default which was taken by the

financial creditor is 15.04.2021 with regard to both the contracts. The

financial creditor has relied on date of default 15.04.2021 which is

subsequent to Section 10A period and default by the corporate debtor has

been claimed from 15.04.2021 thereafter and the amount which is in default

after 15.04.2021 is much beyond the threshold period. We find substance in

the submission of the appellant that the adjudicating authority committed an

error in rejecting application as barred by Section 10A.

9. Counsel for the appellant has placed reliance on the judgment of this

Tribunal in 'Koncentric Investments Ltd.' Vs. 'Standard Chartered

Bank,' reported in [2022 SCC OnLine NCLAT 1254], where this Tribunal in

paragraph 21 of the judgment has categorically laid down that financial

creditor is at liberty to file Section 7 application but it is neither mandatory

nor necessary that on first default the financial creditor should rush to the

insolvency court. In paragraphs 21, 24 & 25, following has been laid down:

"21. The Insolvency and Bankruptcy Code including rules and regulations, does not indicate that it is mandatory for the financial creditor to rush to file section 7 application whenever the first default is committed in payment of interest. Although it had liberty to file an application even if there is default in payment of interest. Section 7(1) of the Code uses the expression when a default has occurred there is no indication under section 7 of the Code that unless an application is filed on the first default committed, no application can be filed when subsequent defaults are committed. The financial creditor is at liberty to file a section 7 application but is neither mandatory nor necessary that on first default the financial creditor should rush to the insolvency court. The financial creditor may await and give more time to the corporate debtor to find out as to whether actually the corporate debtor has become insolvent and unable to repay the Comp. App. (AT) (Ins.) No. 116 of 2024 7 of 11 debt and even the financial creditor ignores non- payment of interest when the corporate debtor first defaulted it shall not lose its right to file application under section 7 of the Code when default of instalment or whole amount became due. The only statutory requirement is that default as claimed in the application under section 7 should be within three years from the date when application is filed under section 7 of the Code because any default of amount committed before three years of filing of the application shall become a time barred debt and cannot be said to be payable and due within the meaning of section 3(11) and (12) of the Code.

24. In the above case, the amount was declared the non-performing asset of the borrower on January 30, 2010 which was mentioned in column 2 of part IV has been accepted by the hon'ble Supreme Court itself and the application was filed on February 13, 2019 hence the court held that the application was barred by time. In the above case, recall notice was issued on February 19, 2019 demanding total amount including interest and principle and amount was calculated from the date of default. The Insolvency and Bankruptcy Code proceedings are proceedings which are intended to be proceeding for resolution of the insolvency of the corporate debtor, it is for the purpose that when a corporate debtor becomes insolvent, proceeding for resolution of insolvency may be commenced. If we accept the submissions of learned senior counsel for the appellant that on every first default even if it small fraction of loan, the financial creditor has to rush to the Insolvency and Bankruptcy Code for initiating insolvency proceeding the same shall not be in accordance with the object of the Code. The Code is not recovery proceeding so as to on fraction of default a creditor rush to the Insolvency and Bankruptcy Code. The financial creditor can very well give little more time to borrower or to itself for coming to the conclusion that the corporate debtor has apparently become insolvent although at the risk of forfeiting its right to claim amount which is barred by time.

25. To accept the submissions made by learned senior counsel for the appellant, we have to read one additional word under section 7 before the word "default" under sub-section (1) of section 7 of the Code, i.e., the word first. The submission of the appellants is that when first default is committed by a debtor, the creditor has necessarily and mandatorily to initiate Comp. App. (AT) (Ins.) No. 116 of 2024 8 of 11 application under section 7 failing which the right of creditor to file an application under section 7 of the Code shall be defeated by law of limitation. It is well settled principle of statutory interpretation that in a statute the court cannot read an additional word which has not been used by legislator. The definition of default in sub-section (12) of section 3 itself comprises several events, i.e., non-payment of debt when whole or any part or instalment of the amount of debt has become due. The default may be of different nature on some default the entire amount may become due like when account is declared non-performing asset, there may be some default by happening of which only fraction of amount became due like in present case non-payment of interest on June 30, 2015 only interest part became due. The Insolvency and Bankruptcy Code does not comprehend that on first default committed by any debtor, all creditors should rush to the Insolvency and Bankruptcy Code. The core objective of the Insolvency and Bankruptcy Code is resolution of insolvency of a corporate debtor. All provisions have been made; the entire scheme of the Insolvency and Bankruptcy Code has been contemplated to achieve the aforesaid object. Where debtor is unable to pay a fraction of debt which becomes due there is no presumption that debtor has become insolvent and, in an event, the creditor awaits for some more time like default by non-payment of first instalment or entire due as in the present case the right of creditor shall not be foreclosed. What is intended by scheme of statute is that no application under section 7 can be filed for default from which date the due claim has become time-barred. Time-barred debt cannot be revived by any proceeding under section 7 which has time and again been reiterated by hon'ble Supreme Court of India. We are thus not persuaded to read an additional word "first" before the expression "default"

under sub-section (1) of section 7 as contended by learned senior counsel for the appellant."

10. To the same effect, counsel for the appellant has relied on the another

judgment in the matter of 'NuFuture Digital (India) Limited' Vs. 'Axis

Trustee Services Ltd.' in [Comp. App. (AT) (Ins.) No. 444/2023], decided

on 09.05.2023, wherein paragraph 20, this Tribunal laid down following:

Comp. App. (AT) (Ins.) No. 116 of 2024 9 of 11 "20. 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 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 25th 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"

11. The above judgments clearly support the submissions of the appellant

that when the Section 7 application is based on default committed subsequent

to Section 10A period and the amount claimed subsequent to Section 10A

period is well beyond threshold, application cannot be rejected on the ground

that it is barred by Section 10A application. We only clarify that Section 7

application filed by the appellant has to confine to the default committed

subsequent to Section 10A period.

12. In view of the aforesaid, we are of the view that order of the adjudicating

authority rejecting the application as barred by Section 10A cannot be

Comp. App. (AT) (Ins.) No. 116 of 2024 10 of 11 sustained. The impugned order dated 02.11.2023 is set aside. It is held that

application is not barred by Section 10A.

13. In result, the appeal is allowed and the impugned order is set aside.

C.P. (IB) No. 1058/MB/2022 is revived before the adjudicating authority for

afresh consideration in accordance with law. We make it clear that we have

not entered into any other contentions, except the submissions on Section

10A.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical) himanshu/md

Comp. App. (AT) (Ins.) No. 116 of 2024 11 of 11