Factual Background 

In the matter of NuFuture Digital (India) Ltd. v. Axis Trustee Services Ltd Appellant-Corporate Debtor NuFuture Digital India Ltd. and respondent Financial Creditor, Axis Trustee Services Ltd. entered into a debenture trust cum mortgage deed, giving the Corporate Debtor some time to pay back the Financial Creditor’s debts in 2020. The corporate debtor was given an additional three months by the financial creditor to repay the debt. The Financial Creditor issued a Legal Notice about the same in 2022, but it was ineffective.

To start the Corporate Insolvency Resolution Process (CIRP), the respondent chose to apply to Section 7 IBC against the corporate debtor. The Section 7 application was contested by the appellant because Section 10-A IBC, which bans insolvency procedures during the COVID-19 pandemic, prevented it. The Adjudicating Authority rejected the appellant’s argument that the Section 7 application should be dismissed in a decision dated 30-03-2023 and held that Section 10-A does not bar the Section 7 application. Displeased with the contested order made by the adjudicating authority, the appellant filed the current appeal with the NCLAT to contest it.

Issue 

Whether Section 10-A IBC, which forbids the start of CIRP for defaults that happened during the duration of covid 19 bar an application made under Section 7 IBC by a financial creditor? 

Analysis of Tribunal order 

The Insolvency and Bankruptcy Code, 2016 (IBC) Section 10-A has no bearing on actions brought for defaults that occurred after the Section 10-A codification period, according to the Division Bench of NCLAT Justice Ashok Bhushan and Justice Barun Mitra.

Ramesh Kymal v. Siemens Games Renewable Power (P) Ltd. was cited by the NCLAT. the present petition is only filed with respect to the default committed after the Section 10-A period was over for the default on 31-03-2021 and thereafter, and that Section 10-A provided that no application shall ever be filed for the default which occurred during the period from 25 March 2020 to 25 March 2021. When an action is brought for a default that took place after the 10-A period, Section 10-A is not applicable.

As the defaulted amount included for the computation in the Section 7 application did not pertain to the period covered by Section 10-A IBC, the NCLAT concluded that the application preferred by the Financial Creditor under Section 7 IBC was not affected by Section 10-A. There is no reason to hold that the Section 7 application is prohibited by Section 10-A because no defaulted amount contained in the Section 7 application is for the period covered by Section 10-A. While denying the appellant’s request for the rejection of the Section 7 application, NCLAT maintained the Adjudicating Authority’s ruling and concluded that the Section 7 application is not barred by Section 10-A.