The National Company Law Appellate Tribunal, New Delhi (“NCLAT”), vide order dated 13 May 2024, has dismissed an appeal filed by Mr. Maneesh Kumar Singh (the “Appellant”), a suspended director of Advantage Overseas Private Limited (“AOPL”). This appeal was filed against an order dated 10 November 2023, passed by the National Company Law Tribunal, Mumbai (“NCLT”). Vide the said order, the NCLT had admitted a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), filed by the State Bank of India (“SBI”), thereby initiating the corporate insolvency resolution process against AOPL.
In the appeal, the Appellant’s primary arguments were two-fold. First, the Appellant contended that the NCLT incorrectly held that the date of default fell outside the period prescribed under Section 10A of the IBC. Second, the Appellant contended that the NCLT incorrectly held that the petition was filed within the period of limitation.
Re Section 10A of IBC: While affirming the NCLT’s decision, the NCLAT concluded that the date of default fell outside the period prescribed under Section 10A of the IBC and noted the following:
- Originally, AOPL committed default on 08 August 2018, which is prior to the period prescribed under Section 10A of the IBC.
- SBI initiated proceedings before the Debt Recovery Tribunal, Jabalpur (“DRT”) under Section 19 of the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, for recovery of the amount in default.
- Subsequently, SBI and AOPL entered into a One Time Settlement (“OTS”) on 05 September 2020. As per the OTS, SBI had the right to cancel the OTS if any agreed installment was not received within the approved period. Upon cancellation, the entire dues would become payable to SBI.
- In June 2021, SBI and AOPL jointly filed an application before the DRT for a consent decree in terms of the OTS. On 26 April 2022, the DRT acknowledged the OTS and, in its judgement recorded that ‘in the event of failure to adhere to the terms of the OTS, the entire outstanding amount would be payable’.
- It was not in dispute that SBI vide letter dated 02 January 2023 had communicated to AOPL that the OTS between the parties had failed.
The NCLAT reaffirmed its findings in the case of Raghavendra Joshi v. Axis Bank Limited & Anr., 2023 SCC OnLine NCLAT 498, wherein it was held that when a default by the corporate debtor occurs prior to the period prescribed under Section 10A of the IBC and the debt is subsequently acknowledged, Section 10A cannot be invoked. Relying on Raghavendra Joshi (Supra) and considering the actions of AOPL after the default in March 2021—such as filing a DRT application, grant of undertaking, consent decree by DRT and final recall notice —the NCLAT held that the default date was correctly determined by the NCLT to be outside the period prescribed under Section 10A of the IBC.
Re issue of limitation: The NCLAT held that the date of default was 08 August 2018. AOPL submitted OTS proposals on 11 March 2020 and 05 May 2020. SBI filed the Section 7 petition on 13 March 2023, which is within three years from the submission of the OTS proposal. The OTS proposals submitted by AOPL were clearly an acknowledgement of the debt, allowing SBI to benefit from Section 18 of the Limitation Act, 1963. The NCLAT thereafter relied upon the decision of the Hon’ble Supreme Court of India in Kotak Mahindra Bank v. A. Balakrishnan, (2022) 9 SCC 186, and held that since the consent decree was passed by the DRT on 26 April 2022, the three-year period for filing the Section 7 petition would commence from that date. Consequently, the NCLAT upheld the NCLT’s finding that the Section 7 petition was not time-barred.
This case assumes importance because the NCLAT has reaffirmed two crucial points: (i) Section 10A of the IBC cannot be invoked when the default occurred before the period prescribed under this provision, and when the debt was subsequently acknowledged by the corporate debtor; and (ii) the limitation period for filing a petition under Section 7 of the IBC is extended if the debt has been acknowledged by the corporate debtor in its balance sheet or in a settlement proposal sent to the financial creditor.
Our Disputes Team Comprised Partner – Varghese Thomas, Divyam Agarwal and Fatema Kachwalla, Principal Associate – Pallavi Kumar, Senior Associate – Ahsan Allana, Associate – Mayank Ratnaparkhe.
Ahsan specialises in disputes in the corporate sector with an emphasis on penal laws and general corporate commercial disputes. He has extensive experience in Disputes relating to dishonour of cheques/promissory notes.