Section 10A Doesn't Bar CIRP If Default Continues Beyond Protected Period: NCLT Kolkata

Section 10A Doesn't Bar CIRP If Default Continues Beyond Protected Period: NCLT Kolkata

Introduction

The National Company Law Tribunal (NCLT), Kolkata Bench, has held that if the default is committed prior to or during the Section 10A period and liability to pay interest is accrued during the Section 10A period and continued thereafter, such interest could be counted to meet the threshold of Rs. 1 Cr.

Factual Background

The operational creditor supplied kraft paper to the corporate debtor on the basis of purchase orders. The corporate debtor failed to make a payment of Rs. 1.42 Cr. for the goods purchased. After issuance of the demand notice, the corporate debtor started making payments in installments, but no payment was made after January 2024.

Procedural Background

The operational creditor served another demand notice in May 2024, which was disputed by the corporate debtor. The operational creditor then filed a Section 9 application before the NCLT.

Issues

1. Applicability of Section 10A: Whether the application is barred under Section 10A of the IBC.

2. Threshold Limit: Whether the interest accrued during the Section 10A period can be counted towards the threshold limit of Rs. 1 Cr.

Reasoning & Analysis

The bench of Justice Bidisha Banerjee (Member-Judicial) and Siddharth Mishra (Member-Technical) observed that Section 10A protection does not extend to a default that continues beyond the protected period. Moreover, relying on the decision of Beetel Teletech Ltd. v. Arcelia IT Services Pvt. Ltd., the bench held that the application is not barred under Section 10A of the IBC. The bench also observed that the invoices contained clauses with regard to the interest of 18%, and the corporate debtor failed to make any objections to that.

Decision

The NCLT admitted the application, holding that the interest accrued during the Section 10A period can be counted towards the threshold limit of Rs. 1 Cr.

Implications

The decision clarifies the treatment of interest accrued during the Section 10A period and its impact on the threshold limit.

Conclusion

The NCLT's judgment in this case provides clarity on the applicability of Section 10A and the treatment of interest accrued during the Section 10A period. The decision is significant for operational creditors and corporate debtors.

In this case the appellant was represented by Mr. Avik Chaudhuri and Ms. Shruti Majumdar, Advocates. Meanwhile the respondent was represented by Mr. Prasenjit Burman and

Mr. Swapnesh Mallik, Advocates.