Section 10A Bar Applies Suo Motu: NCLT Kochi Rejects CIRP Pleas Over Covid-Period Defaults Despite No Specific Defence

Section 10A Bar Applies Suo Motu: NCLT Kochi Rejects CIRP Pleas Over Covid-Period Defaults Despite No Specific Defence

Introduction

The National Company Law Tribunal (NCLT Kochi) has held that the statutory suspension under Section 10A of the Insolvency and Bankruptcy Code, 2016 (IBC) must be examined by the Adjudicating Authority even in the absence of a specific plea by the corporate debtor. Dismissing two insolvency petitions against KKR Products and Marketing Private Limited, the Tribunal found that the alleged defaults arose during the Covid-19 protected period and were therefore barred.

Factual Background

Two petitions seeking initiation of corporate insolvency resolution process (CIRP) were filed against KKR Products and Marketing Private Limited by Lakshmi Venkateshwara Traders (LVT) and RS Melgiri & Company (RMC). LVT claimed a default of ₹2.36 crore, including a principal outstanding of ₹1.49 crore along with interest, alleging non-payment despite supply of goods and issuance of invoices.

RMC claimed a default of ₹13.16 crore, comprising a principal sum of ₹4.06 crore along with interest. It contended that several cheques issued by the company were dishonoured due to insufficiency of funds. The invoices forming the basis of both petitions were issued during the period covered by Section 10A of the IBC, which suspended initiation of insolvency proceedings for defaults arising during the notified Covid-19 period.

Procedural Background

The corporate debtor opposed the petitions on grounds of limitation, existence of disputes, and misuse of the IBC as a debt recovery mechanism. However, no formal and specific defence invoking Section 10A was raised. The Tribunal, presided over by Judicial Member Vinay Goel, nonetheless examined whether the petitions were maintainable in light of the statutory bar under Section 10A. The Bench proceeded to assess whether the date of default and the invoices fell within the protected Covid-19 suspension period.

Issues

1. Whether the Adjudicating Authority can examine the applicability of Section 10A of the IBC even in the absence of a specific plea by the corporate debtor.

2. Whether the alleged defaults arose during the period protected under Section 10A.

3. Whether the petitions were maintainable once amounts covered by the Section 10A bar were excluded.

Contentions of the Parties

The petitioners contended that goods had been supplied and payments remained outstanding. They argued that the corporate debtor had failed to honour its payment obligations and that dishonoured cheques evidenced default.

The corporate debtor argued that the petitions were not maintainable, were barred by limitation, and involved disputed claims. It further submitted that the IBC could not be invoked as a substitute for recovery proceedings. Although no specific defence under Section 10A was pressed, the Tribunal independently examined the applicability of the statutory bar.

Reasoning and Analysis

The Tribunal observed that insolvency proceedings under the IBC have an in rem effect and carry significant consequences for the corporate debtor. In this context, it held that mere silence, ignorance, or inaction on the part of the respondent would not preclude the Adjudicating Authority from examining whether the petition conforms to the provisions of the IBC. Upon examining the record, the Tribunal found that all relevant invoices were issued during the period covered by Section 10A and that the alleged defaults also arose within that protected period.

It held that subsequent payments made by the corporate debtor do not alter or shift the original date of default. Since both the invoices and the dates of default fell squarely within the statutory suspension period, the bar under Section 10A was attracted. The Tribunal further observed that once amounts covered under Section 10A were excluded, the petitions became untenable.

Decision

The NCLT Kochi dismissed both insolvency petitions against KKR Products and Marketing Private Limited on the ground that the alleged defaults were barred under Section 10A of the IBC. However, the Tribunal clarified that dismissal of the petitions would not absolve the corporate debtor of its underlying liability to pay any dues, if otherwise legally enforceable.

In this case the petitioner was represented by CS Naman G Joshi, Advocate. Meanwhile the respondent was represented by Sreekala Krishnadas, Advocate.