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Every subsequent default gives fresh right and counting of limitation period

Cause Title : Indiabulls Housing Finance Limited vs Revital Realty Private Limited, Company Appeal (AT) (Insolvency) No. 994 of 2022, National Company Law Appellate Tribunal

Date of Judgment/Order : 24.05.2023

Corum : Justice Ashok Bhushan, Chairperson & Naresh Salecha, Member (Technical)

Citied: 

Koncentric Investments Ltd. & Anr. Vs. Standard Chartered Bank & Anr. (Company Appeal (AT) (Insolvency) No. 911 of 2021)

Background

The Appellant sanctioned one loan for Rs. 85 Crores on 05.02.2016 and entered into the loan agreement on 22.02.2016 which was fully disbursed on 09.05.2016 and the Respondent/Corporate Debtor defaulted payment of the instalment for the month of July 2018 which was due and payable on 19.08.2018 resulting into default in terms of the Loan Agreement. The Appellant issued a loan recall notice dated 25.03.2022 and since the loan was not repaid within the timeline provided, an application under Section 7 was filed. The said application was dismissed by NCLT as barred by limitation. The NCLT had held that  28.03.2022 cannot be taken as date of default since cause of action has happened much prior to issuance of Loan Recall Notice.

The Applicant argued that the payment received from the Corporate Debtor till 24.01.2019 were adjusted towards amount due and payable till 19.07.2018 and technically there was nothing due and payable before 19.07.2018, hence there could not have been any default on 09.05.2016 as wrongly held by the NCLT.

The Respondent supporting the decision of the NCLT argued that the Applicant had mischievously and arbitrarily adjusted their payment against the earlier amount outstanding, without taking consent of the Respondent just to drag them into CIRP.

Judgment

NCLAT held that as per the definitions of Debt, Default & Financial Creditor in the Insolvency Code, the Financial Creditor may file an application for initiating CIRP when the default has occurred. It is not necessary for the Appellant to file an application under Section 7 of the Code, on the happening of first default of amount due and it is discretion of the Financial Creditor to decide filing an Application under Section 7 as per the facts and his legal rights. In fact, the intention of the Code is to keep the corporate entity as solvent and going concern entity rather than encouraging or contemplating for initiation of the CIRP against the Corporate Debtor on the drop of the hat i.e. on the first event of default itself. Normally, as commercially prudent mechanism, the financial creditor always tries to resolve the issue with the Corporate Debtor so that his financial interest is not adversely affected and to ensure the same, he sometimes give leeway to the Corporate Debtor to overcome the temporary financial stress of the Corporate Debtor to avoid defaults. It is only this background, the Financial Creditor do not initiate on many occasions the proceeding for CIRP against the Corporate Debtor on the first date of default itself although it is his legal right as provided in the Code and the law.

The action of not filing application by the Appellant under Section 7 of the Code, in event of default of interest amount cannot be interpreted taking away the rights of the Appellant to sue when the first instalment or when the entire loan became due for payment and not paid 

Thus, the Appellant could have taken legal recourse under the Code either on 19.08.2018 or on subsequent defaults or when entire loan became due, payable and defaulted i.e. on 28.03.2022. 

Referring to judgment in Koncentric Investments (supra) and disagreeing with the order of the NCLT, the NCLAT observed that  it is an established the fact the Financial Creditor gets rights for filing an Application under Section 7 of the Code when the right to apply against default accrues and for every default there is a fresh period of limitation.

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