Mr. Rajendra Singh Rathore vs Chetanya Builders Pvt. Ltd.

Per: Barun Mitra, Member (Technical)

The present appeal filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’ in short) by the Appellant arises out of the Order dated 07.11.2025 (hereinafter referred to as ‘Impugned Order’) passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi Bench) in C.P.(IB) No.234/2025. By the impugned order, the Adjudicating Authority has dismissed the Section 7 application filed by the Appellant for initiation of Corporate Insolvency Resolution Process (‘CIRP’ in short) against the Corporate Debtor-Chetanya Buildcon Pvt. Ltd. on the ground that the outstanding amount fell below the threshold prescribed under Section 4 of IBC. Aggrieved by the impugned order, the present appeal has been preferred by the ex-Director of the Corporate Debtor.

Coming to the sequence of events facts of the present case, the Appellant had entered into an Agreement to Sell (‘ATS’ in short) dated 16.02.2017 with Saluja Construction Company Limited which went through several iterations until a fresh ATS dated 27.12.2018 was entered into with the Respondent-Corporate Debtor in respect of a property situated at Friends Colony, New Delhi. Thereafter the ATS was cancelled through a Cancellation Agreement dated 30.01.2020, under which the Respondent undertook to refund a sum of Rs. 2.65 Cr which was payable in 3 tranches viz Rs 65 lakhs in March 2020 and Rs 1 Cr each in March and April 2020. It was also agreed that applicable interest of 9 % p.a would be payable on the outstanding amount from 01.10.2019 onwards. However, as the Respondent failed to discharge the said obligation within the stipulated time, the Appellant filed a Section 7 petition on 23.05.2024, being CP IB No. 359 of 2024 for a principal amount of debt due and payable of Rs. 2,65,00,000/- alongwith interest of Rs. 1,03,35,000/- for the period 01.10.2019 to 31.01.2024. The Respondent had raised a specific objection that since the default had occurred during March to May 2020, it was hit by the statutory bar under Section 10A of IBC. The Adjudicating Authority granted time to the Appellant to file an affidavit on maintainability which opportunity not having been availed, the Section 7 petition was dismissed on 04.09.2024. Thereafter, the Appellant had filed a Restoration Application No. 107 of 2024, which was dismissed on 18.10.2024 followed by dismissal of clarification application vide No IA No. 5833 of 2024. The Appellant thereafter preferred an appeal before this Tribunal being CA(AT)(Ins) No. 186 of 2025 which was disposed of on 28.02.2025 by this Tribunal giving liberty to the Appellant to file a fresh Section 7 application excluding the period of default covered under Section 10A. Pursuant to the liberty granted by this Tribunal, the Appellant filed a fresh Section 7 application being CP (IB) No. 234 of 2025 in which they claimed the same principal amount of Rs. 2.65 Cr which had fallen due during the Section 10A period by asserting that the default was continuing in nature. The interest amount claimed was, however, Rs 93.41 lakh after excluding the Section 10A period. The Adjudicating Authority dismissed CP (IB) No. 234 of 2025 by holding that the principal amount had to be excluded as the default occurred during the Section 10A period while the interest amount was below the minimum threshold of Rs 1 Cr and therefore the Section 7 petition was not maintainable.

Making submissions on behalf of the Appellant, Ld. Counsel for the Appellant submitted that the Cancellation Agreement dated 30.01.2020 constituted a clear and unequivocal acknowledgment of liability by the Corporate Debtor to repay a sum of Rs 2.65 crore alongwith interest @ 9% p.a. with effect from 01.10.2019. Submission was pressed that by virtue of this Cancellation Agreement, the debt liability stood crystallised which liability was squarely covered by the definition of “financial debt” under Section 5(8) of the IBC. Acknowledging that a Section 7 application cannot be filed on the basis of default which arose during the Section 10A period, it was submitted that in the filing of the second Section 7 petition by them, basis liberty given by this Tribunal, adequate care was taken to exclude the debt liability which became due and payable during the Section 10A period. Accordingly, the second Section 7 petition was filed with an amount of default of Rs 2.65 Cr. as principal amount alongwith interest liability of Rs 93.41 lakhs for the period 01.04.2021 to 01.03.2025 which was beyond the Section 10A period. It was asserted that the interest liability for the period 25.03.2020 to 25.03.2021 which fell during the Section 10A period was consciously excluded to ensure that the second Section 7 petition was not hit by Section 10A. However, the Adjudicating Authority by erroneously held that the second Section 7 petition could have only included the interest amount of Rs 93.41 lakh and not the principal amount of Rs 2.65 Cr. because the latter amount fell in default during the excluded period under Section 10A though it was a continuing default. The Adjudicating Authority had thus wrongly held the Section 7 petition to be non-maintainable on the ground that the default amount fell below the threshold limit.

It was further contended that when the definition of the words “debt” and “default” in Section 3(11) and 3(12) respectively of IBC is read together, the default of the Corporate Debtor would commence when there is non-payment of any liability which has become and due and payable. However, this default cannot be anchored to any particular date and a Section 7 application can be triggered any time from the date of commencement of the default until the date till when the debt remains unpaid. As regards the applicability of the provisions of Section 10A of the IBC is concerned, it was asserted that this provision merely suspends initiation of CIRP for defaults occurring during the specified period between 25.03.2020 to 25.03.2021 but does not extinguish the underlying debt. It was contended that Section 10A cannot be interpreted to mean that if the debt liability which arises between 25.03.2020 to 25.03.2021 and continues to remain outstanding even beyond the Section 10A period, even then the Corporate Debtor would not be considered to be in default on any date beyond the Section 10A period. The Appellant contended that they had rightly factored in the principal amount of Rs 2.65 Cr. in the second Section 7 petition as this amount continued to be a default even after 25.03.2021. However, the interest liability which arose during Section 10A period been duly excluded.

Refuting the contentions made by the Appellant, the Ld. Counsel for Respondent-Corporate Debtor submitted that this Tribunal while considering the appeal filed by the Appellant challenging the dismissal of the first Section 7 petition had given the Appellant the liberty to refile the Section 7 application after excluding the default amount which fell due in the Section 10A period. By the Appellant’s own pleadings, the principal amount of Rs. 2.65 Cr. was payable in three instalments in March 2020, April 2020, and May 2020 which dates clearly fell in the Section 10A period and therefore could not have been claimed as debt liability for triggering the Section 7 petition. Once the principal amount of Rs 2.65 Cr. is excluded, only the interest amount could become the subject matter of the Section 7 petition and this amount being only Rs 94.31 lakhs, it fell below the IBC threshold limit and hence not maintainable. It was asserted that it is settled law that a completed breach does not amount to a continuing wrong and in the present factual matrix, the non-payment of the principal amount on the respective due dates constituted a completed default and this is not a case of continuing default.

We have duly considered the arguments advanced by the Learned Counsel for the parties and perused the records carefully.

The short question before us for our consideration is whether the Section 7 application filed by the Appellant was not maintainable since it was predicated on a default which had arisen during the prohibited period of Section 10A and that whether on exclusion of the portion of debt and default which arose during the Section 10A embargo, the default amount boils down to a figure below the threshold limit prescribed by Section 4 of IBC.

To answer the above issue outlined by us, it would be appropriate for us to take notice of Section 10A of the IBC which reads as under:

Having noticed the statutory construct of Section 10A of IBC, we next proceed to look at Part-IV of both the first and second Section 7 petitions which has been filed by the Appellant.

The relevant portion of Part-IV of the Section 7 application filed vide CP No. 359 of 2024 is as extracted below:

When we look at the Part-IV above, it is clear that the principal amount of the debt claimed is Rs 2.65 Cr. and the said debt was to be paid in three tranches falling due in the months of March, April and May 2020. The Part-IV also provided for interest amount of Rs 1.03 Cr. for the period 01.10.2019 to 31.01.2024. From the above particulars it is clear that the Part-IV clearly mentions that the default in respect of the principal amount arose in March, April and May 2020 which indisputably falls in the Section 10A period. Further, even part of the interest computation pertained to the Section 10A period as it covered the interest amount which accrued from 01.10.2019 onwards till the actual date of payment.

This brings us to the relevant portion of Part-IV of the Section 7 application filed vide CP No. 234 of 2025 which is as extracted below:

When we look at the Part-IV above of the second Section 7 petition which is under consideration, it is clear that the principal amount of the debt claimed is again Rs 2.65 Cr. which is the same amount as the one claimed in the first Section 7 petition. Needless to add, the principal amount having remained the same, it can be safely concluded that the default had arisen in March, April and May 2020, as was outlined in the initial Section 7 petition, which squarely falls within the Section 10A period. The Part-IV also provided for interest amount of Rs 93.41 lakhs for the period 01.04.2021 to 01.03.2025 which interest computation period, however, clearly falls outside the Section 10A period.

It is however the case of the Appellant that the second Section 7 petition was clearly maintainable as the Part-IV did not include any liability which was covered by Section 10A of IBC. To buttress their argument, it was asserted that the interest amount was reworked to Rs 93.41 lakhs as against Rs 1.03 Cr. which was reflected in Part-IV of the first Section 7 petition. This revision in the interest computation was on account of the fact that in the second Section 7 petition only the interest amount which accrued after the Section 10A period was factored in unlike the first Section 7 petition where the interest liability was computed with effect from 01.10.2019 onwards which had also included the prohibited Section 10A period. However, the principal amount of Rs 2.65 Cr. claimed in Part-IV of both the first and second Section 7 petitions remains unchanged since the default in respect of the principal amount continued to remain a default even after the Section 10A period had come to an end. In support of their contention that default is a continuing cause of action, reliance was placed on the judgment of the Hon’ble Supreme Court in Laxmi Pat Surana Vs Union Bank of India, (2021) 8 SCC 481 wherein the Hon’ble Supreme Court held that a default continues until the debt is paid. Further reliance has been placed on the judgment of the Hon’ble Supreme Court in Ramesh Kymal Vs Siemens Gamesa Renewable Power (P) Ltd., (2021) 3 SCC 224 to contend that Section 10A is only a temporary suspension of remedy and does not wipe out the liability qua the creditor. It was contended that in view of the continuing default in respect of the principal amount, the existence of financial debt amounting Rs. 3,58,41,250/- inclusive of accrued interest clearly met the threshold requirements, hence, warranting the admission of the present Section 7 application.

Per contra, it is contended by the Respondent that the plea of continuing default adopted by the Appellant is misconceived. It was emphatically asserted that the alleged default of Rs 2.65 Cr. occurred during March, April and May 2020 which fell during the Section 10A protected period and therefore the Appellant stood squarely barred from including this amount in the second Section 7 petition. The Appellant having themselves pleaded in Part-IV of the first Section 7 application that the default occurred in March, April, and May 2020, the subsequent plea of continuing default is an impermissible afterthought aimed at circumventing Section 10A of the IBC. In support of their contention, reliance has been placed on the judgment of the Hon’ble Supreme Court in Ramesh Kymal judgment supra which categorically held that no CIRP application shall ever be filed for a default occurring during the Section 10A period. Reliance was also placed on the judgment of this Tribunal in Manish Mukim v. Ms. Rakhi & Anr. in CA(AT)(Ins.) No. 617 of 2023 which held that defaults cropping up during the Section 10A period enjoy complete immunity and must be excluded while computing debt and default. However while asserting that the principal amount of Rs 2.65 could not be added, on the interest amount claimed by the Appellant, it was conceded that the calculation was in order since this revised amount excluded the liability which arose in the Section 10A period. It was further pointed out that the interest amount being only Rs 93.41 lakhs, the said amount fell below the threshold limit and hence there was no infirmity in the order of the Adjudicating Authority rejecting the Section 7 petition.

The law of Section 10A is well settled and we are guided by the judgment of the Hon’ble Supreme Court in Ramesh Kymal v. Siemens Gamesa Renewable Power, Civil Appeal No. 4050/ 2020 wherein the following has been laid down:

It becomes clear from the above judgement that no application for initiation of CIRP can be initiated for default which is committed during the Section 10A period. Any Corporate Debtor who suffered default on account of Covid-19 should be protected from the filing of any insolvency application in respect of default committed by them during this prohibited period. Thus, any default committed which fell within the Section 10A period enjoyed complete immunity from initiation of CIRP proceedings. The legislative intent of introducing Section 10A into the scheme of IBC was to protect the Corporate Debtor from being pushed into insolvency due to the Covid-19 pandemic fallout. It also held that once the date of default is specified and as long as this date of default falls within the Section 10A period, the application must proceed on that basis and attempt to tinker with the date of default would defeat the very purpose and objective behind the insertion of Section 10A as it would tantamount to denial of the protection envisaged by the legislative fiat.

Hence in the present case when the Appellant had clearly pleaded the date of default in the first Section 7 petition, as structured in three instalments, falling due in March, April and May 2020 without any assertion of a continuing default and further this Tribunal had given the liberty to the Appellant to file the second Section 7 petition afresh only after excluding the period of default covered under Section 10A, the attempt of the Appellant to circumvent the Section 10A statutory immunity to the default liability by changing the date of default to 01.04.2021 is plainly untenable. The reliance placed by the Appellant on the judgment of the Hon’ble Apex Court in Laxmi Pat Surana supra to contend that default cannot be anchored to a single date for it continues until the debt is not paid has no direct bearing on the facts of the present case since in that matter the Hon’ble Supreme Court was deciding on the issue of limitation and in that context had held that the date of NPA is not necessarily the date of default. The Appellant has also unsuccessfully sought the aid of the ratio of the judgment of Madras High Court in Dharamshi K. Patel & Anr. Vs Indian Bank & Anr. in W.P No. 712 of 2024 as in the present case, the principal default which arose during the Section 10A period was a one-time default and hence under a permanent embargo unlike the interest liability which by its nature being a recurring obligation, the same could be considered even after the end of Section 10A prohibited period.

We are of the considered view that any attempt to negate, nullify, invalidate or erode the protection offered by Section 10A cannot be accepted as it would go contrary to the legislative intent behind insertion of Section 10A. That being so we find that the Adjudicating Authority has not committed any error in holding that the portion of the debt liability arising out of the principal amount having coming into default during the Section 10A needs to be ignored and on consideration of the remaining portion falling short of the threshold limit of Rs 1 Cr, the Section 7 petition was rendered non-maintainable and therefore legally impermissible.

We are satisfied that the Adjudicating Authority did not commit any error in rejecting the Section 7 application. We find no good grounds to interfere with the impugned order. The Appeal is devoid of merit and is dismissed. No costs.