Tribunal dismisses Uma Maheswari's appeal, confirming date of default prior to Section 10A period
The National Company Law Appellate Tribunal (NCLAT), Chennai Bench, has dismissed an appeal filed by Uma Maheswari, the suspended director of M/s. Sharon Solutions Limited, challenging the order passed by the National Company Law Tribunal (NCLT) that admitted the company into Corporate Insolvency Resolution Process (CIRP).
The appeal was centered around the contention that the date of default mentioned in the Section 7 application was incorrect and fell within the period protected by Section 10A of the Insolvency and Bankruptcy Code (IBC), thereby rendering the application inadmissible. However, the NCLAT found that the date of default should be considered from the date of the Debt Recovery Certificate (DRC) issued on March 6, 2018, and not from the date of the failure of the One-Time Settlement (OTS) instalment as mentioned in the Section 7 application.
The Tribunal highlighted that the failure of the OTS does not create a new default or reschedule the original loan, thus reaffirming that the original position is restored upon the failure of the OTS. The court also noted that the debt was acknowledged on several occasions between February 2020 and March 2021, which kept the application within the limitation period.
In her appeal, Ms. Maheswari argued that the NCLT's order was contrary to the provisions of the IBC and various Supreme Court rulings, including the judgment in "Ramesh Kymal v. Siemens Gamesa Renewable Power Private Limited," which she claimed prohibited the alteration of the default date. However, the NCLAT found that the correction of the default date in the Section 7 application was permissible, as it was merely a procedural defect and did not affect the substantive rights of the parties.
The appeal also contended that the company was a going concern with commercial viability, capable of settling dues if given time. However, the NCLAT rejected this argument, noting the lack of credible evidence of solvency or viability and the company's failure to implement the sanctioned OTS and bring in investors despite opportunities.
The Tribunal upheld the NCLT's decision, noting that the adjudicating authority had correctly applied the law as per the "Innoventive Industries v. ICICI Bank Ltd." case, concluding that the debt and default above the statutory threshold were established.
With this decision, the NCLAT reaffirmed that procedural defects should not defeat substantive rights and that the focus should remain on whether default has occurred and whether the application is complete.
The appeal was dismissed, and all pending interlocutory applications were closed, allowing the CIRP process to proceed.
Bottom Line :
Insolvency and Bankruptcy Code, 2016 Section 7 application - Wrong mention of date of default in Form I as date of failure of OTS instalment is a curable defect - Failure of OTS does not create a fresh default or reschedule the original loan - Date of default can be reckoned from date of NPA or Debt Recovery Certificate, Section 10A bar not attracted where actual default was prior to protected period - Viability plea rejected in absence of credible material.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 7, 10A, 238A, Limitation Act, 1963 Section 18.
Uma Maheswari v. M/s. UCO Bank, (NCLAT)(Chennai) : Law Finder Doc id # 2989454
