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TMI Blog2023 (9) TMI 1289X X X X Extracts X X X X X X X X Extracts X X X X ..... s admitted. The Suspended Director of the Corporate Debtor aggrieved by the order has come up in this Appeal. 2. Brief facts of the case necessary to be noticed for deciding this Appeal are: (i) The Central Bank of India vide Sanction Letter dated 24.03.2015 sanctioned Term Loan of Rs.125 crores to Anjana Retail Infrastructure Pvt. Ltd. Vide Sanction letter dated 05.12.2016, Term Loan of Rs.187.50 crores was sanctioned to one RJ Texcot Private Limited. On 02.08.2018, Anjana Retail Infrastructure Pvt. Ltd. and RJ Texcot Private Limited merged with the Corporate Debtor vide order dated 02.08.2018 passed by the NCLT, Mumbai. Vide letter dated 23.09.2021, i.e. Term Loan-III, Rs.155/- crores were sanctioned. (ii) In view of the outbreak of Covid-19 pandemic, the Reserve Bank of India published Master Circular dated 06.08.2020 for Resolution Framework for Covid-19 related stress. (iii) Default was committed by the Corporate Debtor in regard to above three Term Loan on 30.09.2020 and the Corporate Debtor was ascertained as NPA on 29.12.2020. (iv) Under the Regulation Framework for Covid-19 dated 06.08.2020, One Time Restructuring Proposal ("OTR") was requested by the Corporate De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is earlier. It is submitted that admittedly, before implementation of the Plan, the Corporate Debtor was declared NPA on 29.12.2020, which date has to be referred to for default as per the Circular dated 06.08.2020. For Section 7 Application in the present case, date of default has to be treated as 30.09.2020 and date of NPA as 29.12.2020, which date is also mentioned in Section 7 Application. Both the dates being covered by Section 10A, Application was clearly barred by time. It is submitted that default under OTR Agreement relates back to the default prior to implementation of OTR Agreement. Hence, the Application filed under Section 7 is barred by Section 10A and the date of default is not 31.03.2022 as mentioned in the Application, but 30.09.2020 which date is covered under 10A period. 5. Shri Manoj Swarup, learned Senior Counsel for Central Bank of India refuting the submissions of the Appellant submits that Section 7 Application was filed on the default committed by the Corporate Debtor on 31.03.2022 under the OTR Agreement and the Application was not based on the default committed on 30.09.2020. The learned Senior Counsel has referred to various clauses of the OTR Agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 48, following have been stated: Company Appeal (AT) (Insolvency) No.837 of 2023 7 " Post Implementation Performance 46. For personal loans, after implementation of the resolution plan in terms of this facility, the subsequent asset classification will be governed by the criteria laid out in the Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances dated July 1, 2015 or other relevant instructions as applicable to specific category of lending institutions. 47. In respect of exposures other than personal loans, any default by the borrower with any of the signatories to the ICA during the monitoring period shall trigger a Review Period of 30 days. Monitoring period, for this purpose, is defined as the period starting from the date of implementation of the resolution plan till the borrower pays 10 percent of the residual debt, subject to a minimum of one year from the commencement of the first payment of interest or principal (whichever is later) on the credit facility with longest period of moratorium. 48. If the borrower is in default with any of the signatories to the ICA at the end of the Review Perio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch 2022 to February 2024. 10. The OTR Agreement which was part of Section 7 Application is relevant to notice. The OTR Agreement was with regard to Term Loan-I, Term Loan-II and Term Loan-III issued by the Central Bank of India. In Clause-H, restructuring was granted to the outstanding original loans under Circular dated 06.08.2020. Clause-H of the Agreement is as follows: "H. Owing to the above stated conditions of Business due to COVID-19 pandemic, the Board of Directors of the Borrower vide their resolution dated _________ authorised the Borrower to seek restructuring of the below mentioned outstanding Original Loans aggregating INR 400.27 Crores ("Outstanding Loans") under Reserve Bank of India 'Resolution Framework for COVID 19 Related Stress' dated August 6, 2020 ("Resolution Framework"): Facility Outstanding Amount (Rs. in Crores) TL-1 64.00 TL-II 136.98 TL-III 150.69 Term Loan-BOB 48.60" 11. Clause-J, of the OTR Agreement reads as below: "J. In order to record the terms of Resolution Plan and Sanction Letter, the Parties hereto have agreed to amend/ supplement/ modify the Original Loan Agreements and other existing financing and security documents as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by the Lenders as to whether a provision of any Finance Document inconsistent with the term of this Agreement shall be final and binding on the Borrower. e) Subject to the aforesaid, on and from the Effective Date, this Agreement shall constitute the entire agreement between the Parties concerning the Outstanding Loans and FITL, and supersedes all previous proposals, agreements, understandings, negotiations and other written and oral communications in relation thereto. f) The disbursements already made in terms of the Original Loan Agreement shall be deemed to be part of the Loans and shall be governed by the terms and conditions of this Agreement. g) In case of any consistency between the terms of this Agreement and the terms of the Restructuring Sanction Letters of the Lenders, the Restructuring Sanction letter shall prevail over this Agreement to the extent of such inconsistency. h) The Parties acknowledge and agree that any amounts paid by the Borrower, post the Cut-off Date, towards repayment of instalment of Loans of FITL, shall be adjusted towards future interest liability on the Loans and FITL." 14. The above Clause 2.1 clearly indicates that after executio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower in favour of the Lenders/ Lead Lender (acting for the benefit of Lenders) or its nominees and/ or assignees such other person or persons either by way of lease or leave & license, sale, transfer, assignment comprising the security. e) substitute themselves or any one of them or its nominees and its designee for the Borrower under any or all of the Project Document(s) and to pursue any other legal remedy or right provided under Applicable Law, including but not limited to, taking appropriate action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 as may be amended/ modified from time to time. f) terminate the right of the Borrower to make any withdrawals from out of the Facilities. g) Appoint, from time to time, one nominee on the Board of the Borrower (such director is hereinafter referred to as the "Nominee Director") and remove the Nominee Director at any time during the currency of this Agreement; and h) Any other remedies that may be recorded as such in the other Finance Documents." 17. Clause 8.2 (e) clearly contemplate that in the event of default, the Lenders in its own discretion is entitled to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00,000.00 would not have been disbursed for servicing the interest of the three Term Loans during the moratorium period allowed from November 2020 to February 2022 as per the OTR sanction terms. Date of Default - 31.03.2022 (Under OTR) Date of NPA - 29.12.2020 NOTE:- The Corporate Debtor had requested for One Time Restructuring (OTR) under Resolution Framework for COVID-19 related Stress announced by RBI vide its circular dated 06.08.2020 and the same was sanctioned by the Financial Creditor. However, the Corporate Debtor failed to honor the debt obligations under OTR and has defaulted towards repayment of Company Appeal (AT) (Insolvency) No.837 of 2023 18 Principal & Interest with the Financial Creditor which have fallen due for repayment on 31.03.2022 As per the sanctioned terms of OTR, on account of default towards non-payment of Principal and interest to the financial Creditor, the said accounts of the Corporate Debtor were downgraded to SMA-2 category with effect from on 31.03.2022 and on account of continuous default for 30 days from the date of default i.e. 31.03.2022; the accounts have slipped to NPA on 30.04.2022. Under RBI guidelines on Resolution Framew ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time. Section 10A of the Code provides as follows: "10A. Suspension of initiation of corporate insolvency resolution process. Notwithstanding anything contained in sections 7, 9 and 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf: Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period. Explanation. - For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any default committed under the said sections before 25th March, 2020." 21. Section 10A makes it clear that no Application shall ever be filed for initiation of Corporate Insolvency Resolution Process ("CIRP") if the default occurred during the Section 10A period. What is prohibited was initiation of proceeding under Section 7, 9 and 10 for any default committed by the Corporate Debtor pre 10A period. Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t relevant to find out event of default, which occurred under the One Time Restructuring Agreement and which is foundation of Section 7 Application. 22. As noted above, the event of default under the One Time Restructuring Agreement, which contained in Clause 8.1 as extracted above and by virtue of Claude 8.2, which contains heading "Consequences in event of default", the lenders in its own discretion can exercise or pursue any other legal remedy or right provided in any other applicable law. Thus, when event of default under the One Time Restructuring Agreement happens, the said event of default shall form foundation of any legal action as per Clause 8.2. The One Time Restructuring Agreement, which is entered between the parties, i.e., the Corporate Debtor and the Central Bank of India and is binding on the parties. The event of default is clearly contemplated and event of default is default by the borrower in making payment of installment of principal amount or installment of interest on the lines of FITL or any interest payment. Default under Clause 8.1 can be committed only after implementation of the One Time Restructuring Agreement and the default referred to under Clause 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter 25-3-2020; and (iii) for a period of six months or such further period not exceeding one year from such date as may be notified in this behalf. 19. The proviso to Section 10-A stipulates that "no application shall ever be filed" for the initiation of the CIRP of a corporate debtor "for the said default occurring during the said period". The Explanation which has been inserted for the removal of doubts clarifies that Section 10-A shall not apply to any default which has been committed under Sections 7, 9 and 10 before 25-3-2020." 24. In the above case an Application under Section 9 was filed on 11.05.2020 whereas an Ordinance No.09/2020 was Promulgated by the President of India from 05.06.2020, by which Section 10A was inserted in the Code. It was contended that the Application was filed prior to Ordinance when Section 10A was brought into force, which argument was rejected. The ratio of the judgment is well settled that with regard to a default committed under Section 10A, no Application can ever be filed for the said default. Thus, what is prohibited is initiation of proceedings for any default committed during 10A period. In the present case, Application under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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