Rescheduling Payment Doesn't Change Repayment Obligations Under Original Agreement: NCLAT

Rescheduling Payment Doesn't Change Repayment Obligations Under Original Agreement: NCLAT

Introduction

The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, has held that mere rescheduling of payment through a new agreement does not alter repayment obligations under the original Common Loan Agreement, nor does it result in novation. Accordingly, a Section 7 application under the Insolvency and Bankruptcy Code, 2016 (IBC) can still be filed based on the original agreement.

Factual Background

The Appellant challenged the order of the NCLT, Chandigarh, which admitted a Section 7 application filed by the State Bank of India (SBI). The Appellant argued that the Common Loan Agreement (30.08.2016) was novated by a Tripartite Agreement (09.11.2016), and hence, SBI lacked authority to file the Section 7 application.

Procedural Background

The NCLAT considered the terms of the Tripartite Agreement and noted that it only rescheduled repayment timelines but did not substitute or extinguish obligations under the Common Loan Agreement.

Contentions of the Parties

• Appellant’s Contention: The Tripartite Agreement novated the Common Loan Agreement, and therefore, SBI’s application under Section 7 was not maintainable.
• Respondent’s Contention: The Tripartite Agreement merely altered the repayment schedule and priority, but the corporate debtor’s liability under the Common Loan Agreement continued. The debtor even submitted multiple One Time Settlement (OTS) proposals after 2016, acknowledging the debt.

Issues

1. Whether the Tripartite Agreement dated 09.11.2016 novated the Common Loan Agreement of 30.08.2016?

2. Whether SBI could validly file a Section 7 application based on the original agreement?

Reasoning and Analysis

The Bench of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) held:

• The Tripartite Agreement did not novate the Common Loan Agreement. Clauses such as 6(c) (waterfall mechanism) and 6(h) (payments to lenders under existing financing arrangements) made it clear that repayment obligations under the original loan agreement remained intact.
• The Agreement only rescheduled repayment dates, without extinguishing or substituting prior obligations.
• The debtor’s OTS proposals post-2016 confirmed acknowledgment of debt, negating the claim of novation.
• Even on revised repayment dates, the corporate debtor defaulted, thereby justifying admission of the Section 7 application.

Outcome

The NCLAT:

• Dismissed the appeal, rejecting the plea of novation.
• Upheld the Section 7 application filed by SBI, confirming that obligations under the Common Loan Agreement continued.

Implications

This ruling clarifies that:

• Rescheduling repayment timelines does not amount to novation unless expressly provided.
• Lenders retain their rights under the original financing documents despite subsequent repayment arrangements.
• Corporate debtors cannot escape liability by claiming novation where obligations are merely deferred.

In this case the appellant was represented by Mr. Ishaan Duggal, Mr. Abhirup Dasgupta and Ms. Jayashree S. Dasgupta, Advocates. Meanwhile the respondent was represented by Mr. Assem Chaturvedi and Mr. Siddhant Kumar, Advocates for R-1.