Ms. Mausumi Bhattacharjee vs. Jumbo Chemicals and Allied Industries Pvt. Ltd. and Anr. - The question whether a subsequent agreement is an additional to the main agreement or not; as well as the fact whether new contract supercede old contract would depend on the facts and circumstances of each case.

 NCLAT (2024.07.02) in Ms. Mausumi Bhattacharjee vs. Jumbo Chemicals and Allied Industries Pvt. Ltd. and Anr. [(2024) ibclaw.in 422 NCLAT, Comp. App. (AT) (Ins) No. 886 of 2024 & I.A. No. 3196 of 2024] held that; 

• That the requisites of a novation may include elements like an agreement of all the parties to a new contract, the extinguishment of the old obligations, and the validity in supersession of old contract by the new contract,

• That if the contract is altered in material particulars to change its essential character, the modified contract must be read as doing away with the original contract but if the modified contract has no independent contractual force, no new contract comes into play.

• The question whether a subsequent agreement is an additional to the main agreement or not; as well as the fact whether new contract supercede old contract would depend on the facts and circumstances of each case.

Excerpts of the order;

# 1. The present Appeal has been filed by Ms. Mausumi Bhattacharjee the Promoter of Arjun Industries Limited (in short Appellant) Ms. Mausumi Bhattacharjee who is the Shareholder and Suspended Board of Director of Arjun Industries Limited (in short Corporate Debtor) under Section 61(1) of the Insolvency & Bankruptcy Code, 2016 (in short ‘Code’) in Company Appeal (AT) (Insolvency) No. 886 of 2024 against the Impugned Order dated 22.02.2024 passed by the National Company Law Tribunal, New Delhi Bench (Court – II) (in short ‘Adjudicating Authority’) in IB-79/ND/2022, whereby an application was filed under Section 7 of the Code by the Respondent No. 1 was considered and Corporate Insolvency Resolution Process (in short CIRP) of the Corporate Debtor was initiated. Jumbo Chemicals and Allied Industries Private Limited is the Respondent No. 1 here who is Financial Creditor of the Corporate Debtor.

# 2. Heard the Counsel for the Parties and perused the records made available including the cited judgements.

# 3. It has been brought out that the Corporate Debtor availed a loan from Industrial Development Bank of India (in short IDBI) of Rs. 3.67 Crores and further entered into agreement for foreign currency loan for Rs. 1.83 Crores. It has been alleged by the Appellant that the entire problem of the Corporate Debtor began since the IDBI release only Rs. 3.29 Crores against sanction loan of Rs. 3.67 Crores and similarly release only Rs. 1.25 Crores (Foreign Currency Loan) against Rs. 1.83 Crores.

# 4. The Appellant could not service the debt and repay the loan and IDBI issued legal notice on 10.06.1998. The IDBI also filed OA No. 445/1998 before Debt Recovery Tribunal (in short DRT) for recovery of outstanding amount of Rs. 6,19,87,815/- and the Corporate Debtor, during pendency of such proceedings before DRT, approached IDBI for One Time Settlement (in short OTS) and agreed to settle the outstanding at Rs. 2.50 Crores.

# 5. It has been submitted that the Appellant could not pay even the OTS amount and thus OTS failed. The IDBI assigned its outstanding debts to Kotak Mahindra Bank Ltd. on 31.06.2006 and Kotak Mahindra Bank Ltd. further assigned the debt to the Respondent No. 1 on 16.04.2008 by registered deed ofassignment. Thus, the Respondent No. 1 became the Financial Creditor of the Corporate Debtor.

# 6. It was brought out that the Corporate Debtor filed a Writ Petition before the Hon’ble Delhi High Court for restraining the assignment of loan which was dismissed.

# 7. We note that the Respondent No. 1 filed a petition before the Hon’ble Delhi High Court for winding up of the Corporate Debtor under Section 433 (e) and 433 (f) and Section 434 r/w Section 439 of Companies Act, 1956 before Single Judge Bench. From the judgement delivered by the Hon’ble Delhi High Court dated 22.05.2014, it is observed that at one time the Delhi High Court asked the Appellant to deposit Rs. 2.5 Crores with the Registry, however, while dismissing the petition for winding up of the Corporate Debtor, the said amount of Rs. 2.5 Crores was ordered to be refunded. The Respondent No. 1 challenged Single Bench Judgement before the Division Bench of Delhi High Court for winding up of the Corporate Debtor which was also dismissed on 02.03.2016.

At this stage, it would be worth noting that these proceedings happened prior to Code came into force.

# 8. It has been brought out that a meeting was held between the Appellant and the Respondent No. 1 on 12.10.2018 for agreement on disinvestment of mortgaged properties of the Corporate Debtor and based on this meeting, the Appellant and the Respondent No. 1 entered into a settlement agreement on 27.08.2019, whereby it was agreed between the parties to sale the mortgaged properties and divide the proceed of the sale between them.

# 9. At this stage, we would like to take into account the settlement deed dated 27.08.2019 which reads as under :- . .  . 

# 10. From above settlement agreement, it is seen that parties accepted that the Appellant defaulted repayment of both rupee as well as foreign currency loan. The settlement agreement also note that the original loan of IDBI was assigned through Kotak Mahindra Bank Ltd. vide assignment deed dated 31.03.2006 who in turn further assigned the loan to the Respondent No. 1 vide assignment deed dated 16.04.2008.

# 11. The Settlement Agreement dated 27.08.2019 also stated that the parties have seen several rounds of litigations at different fora and substantial period has elapsed and therefore in order to settle the issues and disputes, it was agreed to sell the property bearing No. SP3-11(B) 1 & 2, Khuskhera Industrial Area, Khuskhera, District Alwar, Rajasthan by executing proposed tripartite agreement with proposed buyers at mutually decided price and subsequently distribute the sale proceeds into equal proportion between the Appellant of the Respondent No. 1.

# 12. It has been alleged that the Appellant sent an e-mail on 26.07.2021 cancelling the settlement agreement which was replied by the Respondent No. 1 on 04.08.2021 alleging that the Appellant is trying to escape his liabilities to repay the loan to the Respondent No. 1 by way of unilateral suo-moto cancellation of the settlement agreement dated 27.08.2019 which was not permissible.

# 13. The Respondent No. 1 filed an application under Section 7 of the Code before the Adjudicating Authority, which was allowed and the Corporate Debtor came into CIRP w.e.f. 22.02.2024.

# 14. The Appellant submitted that Section 62 of the Contract Act, 1872 provides that if parties to a contract agree to substitute a new contract for it, the original contract need not be performed. The Appellant stated that there was novation of contract and the old contract, therefore, ceased to exist between the Corporate Debtor and the Respondent No. 1. The Appellant also argued that in the present case, the Settlement Agreement dated 27.08.2019 did not mention any ‘financial debt’, which the Corporate Debtor allegedly ‘defaulted’ and remained payable and therefore at best the settlement agreement dated 27.08.2019 was a simpliciter agreement to sell the mortgaged properties. It is the case of the Appellant that reciprocal promises, alleged breach thereof, on account of its cancellation cannot constitute default under section 3(12) of the Code and therefore no application under Section 7 of the Code could have been filed for enforcement/ specific performance of such agreement to sell.

# 15. It is the case of the Appellant that in absence of any agreement or contract, there is no question of any debt or default on the part of the Corporate Debtor. It is further the case of the Appellant that the Impugned Order is perverse and need to be set aside.

# 16. The Appellant alleged that the Respondent No. 1 fraudulently concealed from Corporate Debtor that Respondent No. 1 was not an existing company as it’s name had been struck off from the Register of Companies under Section 248 (5), Companies Act, 2013 by Notification dated 08.08.2018. The Appellant further alleged that the Respondent No. 1 preferred Section 7 of the Code application without being in existence and therefore the whole exercise is abuse of process of law.

# 17. The Appellant submitted that the Adjudicating Authority erred in passing the Impugned Order since the Respondent No. 1 did not have any legal existence.

# 18. The Appellant elaborated that the Respondent No. 1 i.e., Jumbo Chemicals and Allied Industries Private Limited’s name got struck off on 08.08.2018 by the Ministry of Corporate Affair. The Appellant submitted that subsequently an alleged agreement was executed between the Corporate Debtor and the Respondent No. 1 on 27.08.2019 which was void. The Appellant stated that the Corporate Debtor vide email dated 26.07.2021 cancelled the said agreement on account of the non existence of legal entity of the Respondent No. 1, being struck off its name and not remaining as a legal entity in the eyes of law at the time of execution of agreement

# 19. The Respondent No. 1 submitted that on 18.09.2023, this Appellate Tribunal in the earlier round of litigation between the parties had held that the acknowledgment of debt in the balance sheets from 1998-99 is continuous and dismissed the argument of the Corporate Debtor based on the judgment rendered by the single judge of the Hon’ble Delhi High Court dated 22.05.2015 wherein it was held that the Financial Creditor has confined its claim only to a sum of Rs. 250 Lacs and interest thereon. The relevant part of this Appellate Tribunal’s earlier order dated 18.09.2023 reads as follows:

“21. When the Company Petition was dismissed with the observation as observed, we fail to see that how the Respondent can contend that claim of the Appellant is limited to only Rs. 250 Lakhs.”

# 20. It is the case of the Respondent No. 1 that this Appellate Tribunal while allowing the Appeal filed by the Respondent No. 1 had held that the Adjudicating Authority committed error in rejecting Section 7 Application filed by the Respondent No. 1 as barred by time.

# 21. The Respondent No. 1 alleged that the Appellant failed to bring out all relevant facts including the balance sheets relevant for the disposal of the Appeal and is trying to mislead this Appellate Tribunal in the present appeal.

# 22. The Respondent No. 1 refuted the plea of the Appellant about novation of contract and also refuted the plea of the Appellant that the Settlement Agreement dated 27.08.2019 modified the earlier contracts between the parties and was in supersession to all earlier contracts. The Respondent No. 1 submitted that the Settlement Agreement dated 27.08.2019 is not any modification or a novation of earlier Agreements i.e. Rupee Term Loan and Foreign Currency Loan. The Respondent No. 1 clarified that the Settlement Agreement was arrived at between the parties after long pending multiple cases filed by the Financial Creditor for realization of the loan amount and it was agreed that the mortgaged properties of the Corporate Debtor would be sold to settle the loan amount in full. The Respondent No. 1 also stated that the Settlement Agreement nowhere stated that the Settlement Agreement shall supersede or modify the loan agreements.

# 23. The Respondent No. 1 pleaded that the original loan/ assignment deed remain valid and continues and the Settlement Agreement dated 27.08.2019 is merely a mechanism to find a way to settle outstanding dues of the Respondent No. 1 and therefore it is not novation of existing legal contracts.

# 24. The Respondent No. 1 argued that the Section 62 of the Indian Contract Act, 1872 relied by the Appellant is not relevant here as the pre-requisite is substitution of the earlier contract which is not reflected in the contents of the Settlement Agreement. The Respondent No. 1 further stated that no intention on the part of the Appellant and the Respondent No. 1 for any novation resulting into modification/substitution of earlier loan agreement or assignment deed can be seen in the settlement agreement dated 27.08.2019.

# 25. We note that the requisites of a novation may include elements like an agreement of all the parties to a new contract, the extinguishment of the old obligations, and the validity in supersession of old contract by the new contract, however, in the present case no such specific clauses exist. We also note that the Settlement Agreement dated 27.08.2019 was only with regard to disposal of the mortgaged properties of the Corporate Debtor.

# 26. We will examine the pleading of the Appellant that since name of the Respondent No. 1 was struck off on the relevant date of signing of settlement agreement dated 27.08.2019, therefore there was no valid settlement agreement. We note that the name of Respondent no. 1 was struck off since the Respondent No. 1 could not furnish the financial statements to relevant authority on time, however, the same was restored by the National Company Law Tribunal, Bench-IV, New Delhi (in short ‘Tribunal’) vide its order dated 24.03.2021 passed in Appeal No. 533/252/ND/2019. The relevant portion of the order is reproduced as under :-

• “10. ***The name of the petitioner company shall then stand restored in the Register of the Registrar of Companies (RoC) as if its name of the company had not been struck off.” (Emphasis Supplied)

# 27. It is significant to note that the Tribunal specifically mentioned the name of the Respondent No. 1 is restored as if its name had not been struck off. We note that the legal implication of this would be that all action taken by the Respondent No. 1 would remain valid including signing of the settlement agreement dated 27.08.2019 and therefore the pleadings of the Appellant on this ground stand rejected.

# 28. We understand that if the contract is altered in material particulars to change its essential character, the modified contract must be read as doing away with the original contract but if the modified contract has no independent contractual force, no new contract comes into play. We do not find any such wording in settlement agreement dated 27.08.2019

# 29. The question whether a subsequent agreement is an additional to the main agreement or not; as well as the fact whether new contract supercede old contract would depend on the facts and circumstances of each case. In the present case based on fact and circumstances brought out on record before us, we do not find that old loan agreements or assignment deeds ceased to exist by signing settlement agreement dated 27.08.2019 and therefore we are unable to accept the pleadings of the Appellant that Section 62 of the Indian Contract Act, 1872 will come into play in the present appeal.

# 30. We find that in case of Manohur Koyal vs. Thakur Das Naskar [(1888) 15 Cal 319], the plaintiff sued the defendant to recover Rs. 1100 due on a bond and after the due date of the bond, the plaintiff agreed to accept from the defendant, in satisfaction of the bond, Rs. 400/- in cash and a fresh bond for Rs. 700/-. The defendant failed to pay the Rs. 400 and to give the fresh bond of Rs. 700/-. In a suit by the plaintiff to recover the amount of original bond, the defendant contended that the subsequent agreement was a novation. It was held that Section 62 did not apply, as the subsequent agreement was made after the breach of the original contract, and that the defendant having failed to perform satisfactorily which he had promised to give, remained liable on the original, contract. This case is similar to facts of the present appeal and is found to be applicable.

# 31. We find that the existing rupee term loan as well as foreign currency loan assigned by registered assignment deeds remain valid which are relevant documents to establish debt and default. We also note that the amount of default was more than Rs. 1 Crore, thus it fulfils, all the criteria laid down by the Code as well as covered under several judgments of this Appellate Tribunal as well as the Hon’ble Supreme Court of India. The argument of the Appellant that there is no debt and default, is found not sustainable. We also note that this Appellate Tribunal in its earlier order dated 24.03.2021 has already noted the fact that there has been continuous acknowledgements of the debt by the Corporate Debtor in its various balance sheets.

# 32. As regard, the subject regarding the settlement agreement stand valid or not in view of the issue raised by the Appellant regarding struck off name of the Respondent No. 1 on the relevant date, we reiterate that since the Tribunal gave clear specific verdict that the restoration would have effect as if the name was never struck off would enable the Respondent No. 1 to enforce the agreements.

# 33. The pleadings of the Appellant that the original term loan/ foreign currency loan agreement which was later assigned by the registered deed in favour of the Respondent No. 1 ceased to exist after signing the settlement agreement dated 27.08.2019 and which the Appellant choose to unilaterally terminate on 26.07.2021, by sending an e-mail to Respondent No. 1 on the plea that the name of the Respondent No 1 was struck off by the Ministry of Corporate Affairs and therefore there is no debt and default and the application filed under Section 7 of the Code could not have been allowed. We wonder, if such types of pleadings of the Appellant are to be accepted then whether any agreement would ever be honoured. Such submissions are legally not tenable and stand rejected.

# 34. Incidentally we note that the loan was sanctioned by the IDBI somewhere in 1996 and even OTS was approved by the IDBI way back in the year 2006. We also note that IDBI assigned its outstanding debts to Kotak Mahindra Bank Limited on 31.06.2006 and Kotak Mahindra further assigned the debts to Respondent No. 1 on 16.04.2008 by registered assignment deeds.

Thus, we find that the loans were sanctioned somewhere in 1996 i.e., almost 28 years back and the last assignment deed was signed in favour of the Respondent No. 1 on 16.04.2008 i.e., 16 years back and even after decades, the litigation has been continuing and no recovery could be affected by the original financial creditors or the present Respondent No. 1 in whose favour the assignment deed was signed almost 16 years back. This state of affair is found to be unusual and alarming.

# 35. In view of above detailed discussions, we find no merit in the appeal. The appeal deserved to be dismissed and stand dismissed. No Costs. Interlocutory Application(s), if any, are Closed.

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JC Flowers Asset Reconstruction Pvt. Ltd. Vs. Laxmi Oil and Vanaspati Pvt. Ltd. - We observe that as per the Code, it is for the Adjudicating Authority to satisfy himself at the stage of admission of application under Section 7 of the Code that default has occurred w.r.t. the debt was due and payable, which remains unpaid, then the Adjudicating Authority is required to admit such application.

 NCLAT (2024.04.23) in JC Flowers Asset Reconstruction Pvt. Ltd. Vs. Laxmi Oil and Vanaspati Pvt. Ltd. [(2024) ibclaw.in 267 NCLAT, Comp. App. (AT) (Ins) No. 1052 of 2022 & I.A. No. 4514 of 2022 ] held that; 

• We observe that as per the Code, it is for the Adjudicating Authority to satisfy himself at the stage of admission of application under Section 7 of the Code that default has occurred w.r.t. the debt was due and payable, which remains unpaid, then the Adjudicating Authority is required to admit such application. 

Excerpts of the order;

# 1. The present Appeal has been filed by Yes Bank Limited (in short ‘the Original Appellant/ Financial Creditor) under Section 61 of the Insolvency & Bankruptcy Code, 2016 (in short ‘Code’) in Company Appeal (AT) (Insolvency) No. 1052 of 2022 against the Impugned Order dated 13.06.2022 passed by the National Company Law Tribunal, Allahabad Bench, Prayagraj (in short ‘Adjudicating Authority’) in CP (IB) No. 05/ALD/2022 

# 2. An I.A. No. 991 of 2023 was filed under Rule 11 r/w Rule 31 of the National Company Law Appellate Tribunal Rules, 2016 by J.C. Flowers Asset Reconstruction Private Limited ( in short the Appellant) seeking its substitution as the Appellant/ Financial Creditor in place of Yes Bank on the virtue of an assignment agreement executed between the J.C. Flowers Asset Reconstruction Private Limited and the Axis Bank on 16.12.2022 for the loan given to the Corporate Debtor by the Yest Bank which has been assigned to the Applicant. The Application was allowed by this Appellate Tribunal on 06.03.2023 and as such J.C. Flowers Asset Reconstruction Private Limited replaced the Yest Bank Limited as the Appellant.

# 3. Laxmi Oil and Vanaspati Private Limited the Corporate Debtor is the Respondent herein.

# 4. Heard the Counsel for the Parties and perused the records made available including the cited judgements.

# 5. It is noted that the Respondent availed credit facilities from the original Appellant vide credit facility letter bearing reference no. YBL/ DEL/ FL/ 200/ 2016-17 dated 26.03.20217 for Rs. 10 Crores as cash credit facility for a period of 12 months against the exclusive charge on the residential land and building. This facility was to expire on 15.03.2018. In pursuance to this facility, a Master Facility agreement (Facility Agreement) was signed between the Appellant and the Respondent on 29.03.2017. This secured cash credit limit was extended vide letter dated 15.02.2018 enhancing from Rs. 10 Crores to Rs. 20 Crores and was valid up to 22.01.2019 which was further renewed upto 24.07.2019. A Supplementary Master Facility Agreement (Supplementary Agreement) and a Deed of Hypothecation (Hypothecation Deed) were executed on 21.02.2018. These facilities were secured by way of letters of continuing guarantees dated 02.02.2018 and 08.05.2018 executed by Mr. Shib Shankar Roy, Kamal Deep Tripathi, Satish Kumar Rawat, Keshav Singh Gaur, Ms. Tarulata Biswas and Nipun Garg as Personal Guarantors in favour of the Appellant.

# 6. It is case of the Appellant that the Respondent delayed in making payments towards interest against the facilities for the month of November 2019, December 2019 and January, 2020 and interest for this period from November, 2019 to January, 2020 were debited in the cash credit facilities on 01.12.2019, 01.01.2020 and 01.02.2020 which were serviced by the Respondent on 26.02.2020 and 27.02.2020 albeit with delay.

# 7. The Appellant stated that interest for the month of February, 2020 was Rs. 27,93,039/- which was charged in the cash credit account on 01.03.2020 for outstanding dues dated 29.02.2020 and cash credit limit was over drawn to Rs. 20,27,91,254.42/- as such the cash credit was over due by a period of one day for the interest amount.

# 8. The Appellant further submitted that in terms of RBI Guidelines dated 27.03.2020 regarding NPA during Covid period, where banks were directed not to declare borrowers as NPA for default of payments arising during the period from 01.03.2020 to 31.08.2020 and accordingly the Appellant did not charge any interest on the cash credit facilities of the Corporate Debtor during this period and only on 01.09.2020, the Appellant charged interest towards cash credit facilities of the Respondent, which has also not been serviced by the Respondent till date.

# 9. The Appellant, on failure of the Respondent, for non adherence to terms as per the signed facility agreement and keeping in view the RBI Guidelines, the Appellant declared the Respondent as NPA on 20.07.2020 i.e., due to non submission of stock statement by the Respondent for a continued period on 6 months as last stock statement was submitted by the Respondent for the month of December, 2019.

# 10. The Appellant vide letter dated 27.08.2020 issued a loan recall notice to the Respondent and vide letter dated 07.09.2020 the guarantee extended by the guarantors were also invoked.

# 11. The Appellant emphasised that despite several reminders and request to the Respondent, the Respondent did not honour the terms of facility agreement and the debt remained unpaid as on 31.08.2021 for Rs. 25,99,34,488/- .

# 12. The Appellant submitted that despite his best efforts, due to failure of the Respondent, he filed an application under Section 7 of the Code for initiating Corporate Insolvency Resolution Process (in short ‘CIRP’). However, the Adjudicating Authority vide its Impugned Order dated 13.06.2022, dismissed the application holding that there is no basis for determining the date of default as 28.02.2020 and further, opined that loan recall notice had been issued on 27.08.2020 which falls between the period covered under Section 10 A of the Code.

# 13. It is the argument of the Appellant that the Adjudicating Authority failed to consider the fact that the Respondent defaulted in repaying its monthly dues for the month of February, 2020, the period which much prior to period stipulated under Section 10A of the Code.

# 14. The Appellant elaborated that Section 10 A of the Code prescribed that no insolvency proceedings can ever be instituting against any entity whatsoever for default cause/ committed in the stipulated period therein. Thus, Section 10 A of the Code could be attracted only to default committed during this stipulated period and not for period prior to stipulated period.

# 15. It is the case of the Appellant that Section 10 A was introduced only to safeguard the interest of distress businesses effected by the Covid-19 pandemic and was not meant to give shelter and protection to habitual defaulters to evade their liabilities. The Appellant further elaborated that the Respondent committed the default for the first time in the month of February, 2020 and the default was continuing thereafter.

# 16. The Appellant submitted that that explanation given under Section 10A of the Code clarify that Section 10A shall not apply to any default committed before 25.03.2020 and since the default was committed by the Respondent in February, 2020, there was no scope whatsoever regarding applicability of Section 10A of the Code and therefore the Impugned Order is patently illegal.

# 17. The Appellant pointed out that the as per the Section 3(12) of the Code, default can be even for any part or instalment of the amount of debt which has become due and payable and not repaid. The Appellant submitted that the present case is squarely covered under the definition as provided in Section 3(12) of the Code.

# 18. The Appellant pleaded that in view of several judgment of Hon’ble Supreme court of India as well as this Appellate Tribunal, once conditions as stipulated under Section 7 of the Code, are fulfilled, the Adjudicating Authority ought to have admitted to application filed under Section 7 of the Code and cited the Judgment in this regard delivered in the case of Laxmi Pat Surana Vs. Union Bank of India [(2020) SCC Online SC 1187].

# 19. The Appellant pointed out that the Respondent relied upon the circulars issued by the Reserve Bank of India, imposing moratorium from 01.03.2020, which is a clear admission of the debt falling due before the period enshrined under Section 10 A of the Code and submitted that the Respondent cannot take the benefit of both the RBI circulars as well as Section 10 A of the Code.

# 20. The Appellant pointed out that the Circular issued by the RBI on 27.03.2020 was merely for the purpose of deferring the recovery of monies falling due between March 1, 2020 and May 31, 2020 and since the Respondent defaulted in making payment of interest due on 28.02.2020 in terms of value date as provided in the account statement of the Corporate Debtor, the same is not covered as per RBI Circular on this aspect.

# 21. The Appellant explained that in his banking system, the instalment become due on the last date of every month and is payable on the first day of the next month. As such the default occurred on 28.02.2020 and payable on 01.03.2020 and in this regard, the Appellant reiterated that RBI Circular is not applicable as the RBI Circular used the word ‘Due’ and clearly the instalment become due on 28.02.2020.

# 22. Concluding his remarks, the Appellant submitted that the Impugned Order is illegal and perverse and requested this Appellate Tribunal to set aside the Impugned Order and allow his appeal.

# 23. Per contra, the Respondent denied all the averments made by the Appellant treating these to be misleading, mischievous and devoid of any merit.

# 24. The Respondent submitted that the Impugned Order has been passed by the Adjudicating Authority after carefully scrutinising the submissions of both the parties and based on legal position, which protects the case of the Respondent regarding alleged default.

# 25. The Respondent refuted the allegations of the Appellant that the Respondent failed to adhere to the facility agreement and further refuted that the cash credit amount started showing delay in interest service.

# 26. The Respondent submitted that he was regular in servicing the credit facility and denied that interest for the month of February, 2020 was not paid till date or there was any default on this account.

# 27. It is the case of the Respondent that the original Appellant/ Yes Bank wrongly declared the Respondent as NPA on 20.07.2020 without following rules and regulations of the RBI. The Respondent submitted that the Appellant classified the Corporate Debtor as NPA due to non submission of stock statement and not on account of default in payment of any interest.

# 28. The Respondent pointed out that the Appellant issued a loan recall notice on 27.08.2020 regarding the entire credit facilities and calling upon the Respondent to pay the alleged debt, which falls within the prohibition period as laid down under Section 10A of the Code i.e., after 25.03.2020.

# 29. It is the case of the Respondent that the Appellant could not have initiated any application under section 7 of the Code as per the legal mandate provided by Section 10A of the Code.

# 30. The Respondent submitted that facilities were extended up to July 2020 and the Appellant in their letter dated 20.12.2019 did not stipulate any timelines for repayment of loan by the Respondent and without taking any further action of settling the matter amicably and as per law, the Original Appellant all of a sudden classified the account of the as NPA.

# 31. The Respondent reiterated that there is no basis for determining the date of default as 28.02.2020 and only relevant date was loan recall notice issued on 27.08.2020 which falls in the period as satisfied under Section 10 A of the Code.

# 32. The Respondent pointed out that the alleged default occurred during the prohibited period between 25.03.2020 and 31.03.2021 for which no action under Section 7 of the Code could have been taken in terms of provision of Section 10 A of the Code.

# 33. Concluding his arguments, the Respondent requested this Appellate tribunal to dismiss the appeal.

Findings

# 34. We note that Section 10 A of the Code was introduced by amendment Act of 2020 dated 05.06.2020 with the purpose to support the business and industry who were adversely affected due to covid 19 pandemic. Section 10 A of the Code provides temporary suspensions on initiation of CIRP, which was provided initially for six months with the provision to be extended from time to time as notified.

# 35. We note that proviso to Section 10 A clearly mentions that “no application shall ever be filed” for initiation of CIRP of “for the said default occurring during the said period”, which signifies that the Parliament clearly envisaged to bar initiation of any application for CIRP, in respect of default which has occurred on or after 25.03.2020 for a period as notified from time to time.

# 36. We also note that the explanation to Section 10 A (quoted above under definition) has been introduced to remove any doubt and clarified the statutory provisions shall not apply to any default occurred before 25.03.2020. Thus, reading the proviso and the explanation, it is obvious that no protection was intended or may available for any default committed prior to 25.03.2020, however the default committed after 25.03.2020, till stipulated period were given complete immunity against the CIRP proceedings.

# 37. We also note that Hon’ble Supreme Court of India has issued a suo-moto order in Suo Moto Writ Petition (c) No. 3 of 2020 vide order dated 10.01.2022, which reads as under:-

1. In March, 2020, this Court took Suo Motu cognizance of the difficulties that might be faced by the litigants in filing petitions/ applications/suits/ appeals/ all other quasi proceedings within the period of limitation prescribed under the general law of limitation or under any special laws (both Central and/or State) due to the outbreak of the COVID-19 pandemic.

5 (iv) It is further clarified that the period from 15.03.2020 till 28.02.2022 shall also stand excluded in computing the periods prescribed under Sections 23 (4) and 29A of the Arbitration and Conciliation Act, 1996, Section 12A of the Commercial Courts Act, 2015 and provisos (b) and (c) of Section 138 of the Negotiable Instruments Act, 1881 and any other laws, which prescribe period(s) of limitation for instituting proceedings, outer limits (within which the court or tribunal can condone delay) and termination of proceedings.”

(Emphasis Supplied)

# 38. We note that the Section 10 A of the Code, by nature, is preventive and prohibitory and begins with non obstante clause i.e., “notwithstanding anything contained in Section 7,9 and 10” and therefore, places complete embargo for initiation of CIRP under these Sections for the period beginning with 25.03.2020 till stipulated period. However, explanation clarify the position that Section 10 A is not meant to be applicable or embargo for initiation of CIRP for default occurred prior to 25.03.2020.

# 39. In this regard, we would like to refer to the judgment of the Hon’ble Supreme Court of India passed in Ramesh Kymal vs. M/s Siemens Gamesa Renewable power Pvt. Ltd. [Civil Appeal No. 4050 of 2020] para 24, 26 and 27.

• “24 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.

• 26 The date of the initiation of the CIRP is the date on which a financial creditor, operational creditor or corporate applicant makes an application to the adjudicating authority for initiating the process. On the other hand, the insolvency commencement date is the date of the admission of the application. This distinction is also evident from the provisions of sub-section (6) of Section 7, sub-section (6) of Section 9 and sub-section (5) of Section 10. Section 7 deals with the initiation of the CIRP by a financial creditor; Section 8 provides for the insolvency resolution by an operational creditor; Section 9 provides for the application for initiation of the CIRP by an operational creditor; and Section 10 provides for the initiation of the CIRP by a corporate applicant, NCLAT has explained the difference between the initiation of the CIRP and its commencement succinctly, when it observed:

• “13. Reading the two definition clauses in juxtaposition, it emerges that while the first viz. ‘initiation date’ is referable to filing of application by the eligible applicant, the later viz. ‘commencement date’ refers to passing of order of admission of application by the Adjudicating Authority. The ‘initiation date’ ascribes a role to the eligible applicant whereas the ‘commencement date rests upon exercise of power vested in the Adjudicating Authority. Adopting this interpretation would leave no scope for initiation of CIRP of a Corporate Debtor at the instance of eligible applicant in respect of Default arising on or after 25th March, 2020 as the provision engrafted in Section 10A clearly bars filing of such application by the eligible applicant for initiation of CIRP of Corporate Debtor in respect of such default. The bar created is retrospective as the cut-off date has been fixed as 25th March, 2020 while the newly inserted Section 10A introduced through the Ordinance has come into effect on 5th June, 2020. The object of the legislation has been to suspend operation of Sections 7, 9 & 10 in respect of defaults arising on or after 25th March, 2020 i.e. the date on which Nationwide lockdown was enforced disrupting normal business operations and impacting the economy globally. Indeed, the explanation removes the doubt by clarifying that such bar shall not operate in respect of any default committed prior to 25th March, 2020.”

• 27 We are in agreement with the view which has been taken by the NCLAT for the reasons which have been set out earlier in the course of this judgment. We affirm the conclusion of the NCLAT. The appeal is accordingly dismissed. There shall be no order as to costs.”              (Emphasis Supplied)

# 40. From above it become clear that the bar on the filing of application for the commencement of CIRP during stipulated period does not extinguish the debt owed by the Corporate Debtor and creditors/ lenders may continue to exercise their rights to pursue their legal remedies under Section 7,9 and 10.

# 41. We note that loan recall notice was sent to the Respondent on 27.08.2020 which is obviously after beginning of the stipulated period of 25.03.2020.

# 42. The moot question in the present appeal would be to determine when actually the default took place and whether this was covered under Section 10A of the Code.

# 43. In this regard, we would like to take into consideration part (IV) of the application filed by the Appellant before the Adjudicating Authority.

# 44. From above is seen that in particular of financial debt, amount claimed is Rs. 25,99,34,488.25/- as on 06.09.2021 and date of default mentioned as 28.02.2020 along with date of NPA as 20.07.2020.

# 45. From part IV we also note that vide letter dated 20.12.2019, the Appellant asked the Respondent to comply with the requirement mentioned in the facility agreement. It is further noted that part IV mentioned that on 28.02.2020, the Corporate Debtor failed to make repayment and hence default took place. Part IV also states that as per RBI Guidelines, the Corporate Debtor was declared as NPA on 20.07.2020 and loan recall notice was issued on 27.08.2020. It is also mentioned that despite several reminder, the Corporate Debtor failed to comply the terms of facility agreement and therefore the Appellant filed an application under section 7 of the Code.

# 46. From above, it is further seen that the Appellant claimed date of default as 28.02.2020 which is prior to stipulated date of 25.03.2020 under Section 10 A of the Code, however, the loan recall notice dated 27.08.2020 and the date of NPA is 20.07.2020, both these dates are after the stipulated date of 25.03.2020 as per Section 10 A of the Code.

# 47. We note from the Written Submissions of the Appellant filed vide Diary No. 82066 dated 10.04.2024 that instalment became due on the last date of every month and was payable on the first date of next month.

Month	Date on which the installment became due	Date on which the installment became payable
December 2019	31.12.2019	01.01.2019
January 2020	31.01.2020	01.02.2019
February 2020	28.02.2020	01.03.2019

(Emphasis Supplied)

Thus, it is the case of the Appellant that payment is due on the last date of month but payable on 1st date of following months.

# 48. At this stage, we would like to refer to the relevant portion of Section 7(1) which reads as under :-

• “7. Initiation of corporate insolvency resolution process by financial creditor.

• (1) A financial creditor either by itself or jointly with 2 [other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government] may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. ***”    (Emphasis Supplied)

Section 7(1) stipulates that the Financial Creditors may file an application under Section 7 for initiating CIRP against the Corporate Debtor before the Adjudicating Authority when a ‘Default’ has occurred. Thus, the crucial word is ‘Default’. Hence we note that the definition of default as given in Section 3 (12) reads as under :-

• “3. Definitions.

• (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;”          (Emphasis Supplied)

# 49. Thus default takes place when any part or instalment of debt has became “Due and Payable” and not ‘paid’. We consciously note that word is “Due and Payable” and not ‘Due’ or ‘Due or Payable’. This signifies that both events should have happened to establish default.

# 50. In the present appeal, the Appellant fairly stated that due occurred on the last date of February, 2020 but was payable on 01.03.2020. Hence, strictly speaking the date of default can not be 28.02.2020 as claimed by the Appellant in Part IV and at best could be as 01.03.2020 i.e., when it became payable.

# 51. Unless the debtor commits default, CIRP against him cannot be initiated under the Code. The words “Due and Payable” used in definition of “default” in section 3 (12) means that the default debt must be subsisting debt. The terms ‘default’ is defined in Section 3(12) of the Code in very wide terms as non-payment of a ‘debt’ once it becomes due and payable, which includes nonpayment of even part thereof or an installment. A creditor is not only required to establish the existence of a debt but is also required to prove that the corporate debtor has defaulted in payment of the debt and if he fails to establish the same, the CIRP cannot be initiated by the Adjudicating Authority. In other words, the mere fact of a ‘debt’ being due and payable is not adequate to justify the initiation of CIRP at the instance of the creditor, unless the ‘default’ on the part of the Debtor is established.

# 52. We note that RBI vide its Circular No. RBI/2019-20/186 dated 27.03.2020 permitted moratorium of three months on payment of all installments between 01.03.2020 to 31.05.2020, and reads as under :-

# 53. At this juncture, we will also like to refer to Facility Agreement dated 27.03.2017 :-

• From above, it is clear that ‘Interest Dates’ is shown as ‘monthly’ but no’ particular date has been specified and the Appellant has pleaded that it become due on last date of month but payable on 1st of the following month.

• We also note that “statement of stock” is to be submitted on monthly basis as part of the financial covenant, but no where it is indicated that submission of stock statement by the Respondent to the Appellant is condition precedent or breach of which result into default of debt.

# 54. We observe that as per the Code, it is for the Adjudicating Authority to satisfy himself at the stage of admission of application under Section 7 of the Code that default has occurred w.r.t. the debt was due and payable, which remains unpaid, then the Adjudicating Authority is required to admit such application. The word to pay such money in praesenti i.e., such debt is due for payment in praesenti or is payable at present i.e., relevant date.

# 55. We would also like to refer to the accounts statement maintained by the Original Appellant in respect of the Respondent. The statement begins from 01.03.2017 and the relevant pages of the statement are reproduced as under :-

The Appellant during pleadings tried to highlight the balance figures mentioned against the transaction date for December 2019/ value date of 30.11.2019 emphasising that the balance amount exceeding the cash credit limit of Rs. 20 Cores. We have already noted that the date of default has been indicated as 28.02.2020 and as per the statement of accounts on 28.02.2020 the outstanding balance shown in statement was Rs. 19,99,98,214.94/- which is lower than the cash credit limit of Rs. 20 Crores.

# 56. However, on the transaction date of 01.03.2020/ value date of 29.02.2020 as per statement of accounts, the interest was capitalised of Rs. 27,93,039/- and the outstanding balance became Rs. 20,27,91,254.42/-. It is the case of the Appellant that although on 28.02.2020 amount was due but it was payable on 01.03.2020 and hence, the default took place accordingly.

# 57. We have already noted earlier from the submissions of the Appellant is that the instalment became due on 01.03.2020 and the RBI Circular dated 27.03.2020 moratorium was permitted for instalment between 01.03.2020 to 31.05.2020, and this moratorium period and was later enhanced from 01.06.2020 to 31.08.2020 vide RBI/2019-20/244 Circular dated 23.05.2020.

# 58. We have already noted the content of Part IV of the application mention the date of default as 28.02.2020 and date of NPA as 20.07.2020 and further mentioned that loan was recalled vide letter dated 27.08.2020.

# 59. We would like to take into account the loan recall notice dated 27.08.2020 mentioned by the Appellant in Part IV of the application which reads as under :-

# 60. From Part 3 of the above loan recall notice, it is seen that it has been alleged that the Respondent did not honour the terms and conditions of the agreement and neglected to submit the ‘stock statement’ to the bank, which was pending since January, 2020 resulting in accounts of borrowers being declared as NPA on 20.07.2020 in accordance with the RBI Guidelines.

It further stated that in these circumstances bank has become entitled to recall the facilities and declare the facility as due and payable and accordingly the bank called upon the Respondent to pay the bank the outstanding amount under the facility together with the interest etc., within seven days from the date of receipt of the notice.

Thus, the reason mentioned in the loan recall notice and resultant converting the account of the Respondent as NPA, was non submission of stock statement and not of default of the amount as noted from the above quoted letter.

# 61. A stock statement is actually a business statement that provides information to the bankers on the value and quality of stock related transactions. Perhaps these are required since bank sometimes give loan with specific margin and company need to maintain stock with the value of the margin.

# 62. However, as per the relevant definitions of the Code, which we have discussed in earlier part, the default is required to take place with reference to debt which is outstanding and become payable. Normally a loan recall notice mentions all the details including reasons for default and is a formal communication from the lender requesting the borrower for repayment of outstanding loan balance.

# 63. In the background of above details, we note that the alleged date of default has bee mentioned as 28.02.20220 ( it should have been 29.02.2020 being leap year) as the Appellant mentioned that the instalment become due on the last date of the month and to be payable on 01.03.2020 and as per RBI Circular dated 27.03.2020, the moratorium started from 01.03.2020 for three months which was further extended for further three months. Thus the Respondent was covered under RBI guidelines and the default could not have been taken as 28.02.2020 or even on 01.03.2020 due to RBI Guidelines and subsequently due to Section 10 A of the Code w.e.f. 25.03.2020.

# 64. We have already seen that as per Part IV the date of NPA was 20.07.2020 and the date of loan recall notice was 27.08.2020 and as such both the dates falls within the stipulated period as provided under Section 10A of the Code dated 25.03.2020.

# 65. Arguments of the Appellant that the Corporate Debtor is not entitled to take protection of the RBI letter dated 27.03.2020 r/w 23.05.2020 in addition to Section 10A of the Code, is not convincing and cannot be accepted. The intentions of the letters of RBI as well as the introduction of Section 10A through amendment Act of 2020 was to protect the business from the financial distress adversely affected due to Covid 19 Pandemic and not to push such Corporate Debtor into Insolvency & Liquidation.

# 66. The Appellant, therefore, was not entitled to initiate the CIRP in the given background of the facts as well as various RBI guidelines and the provisions of Section 10 A of the Code.

# 67. Based on above analysis and considering all legal and factual issue raised by the Appellant, we are unable to accept any of his pleas and the appeal, therefore, deserves to be rejected. However, the Appellant shall have all the legal recourse and remedies as available in the law, if he choose to avail, to recover his money from the Respondent . We also note that IBC is meant for sustaining the Corporate Debtor to the extent possible and not to unnecessary send the Corporate Debtor into CIRP or liquidation.

# 68. In fine the Appeal fails and stand dismissed. No Costs. Interlocutory Application(s), if any, are Closed.

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