NCLT Kolkata in SREI Insolvency: Solicitor General of India Argues Section 10A Not Applicable as Defaults Continued Beyond Moratorium Period

NCLT Kolkata in SREI Insolvency: Solicitor General of India Argues Section 10A Not Applicable as Defaults Continued Beyond Moratorium Period

On behalf of the Reserve Bank of India-appointed administrator, Tushar Mehta, Solicitor General of India, who appeared before the National Company Law Tribunal (NCLT), Kolkata, on behalf of the erstwhile promoters of the Srei group in order to defend the maintainability of the application filed by them under Section 10A of IBC (Insolvency and Bankruptcy Code), stated that the defaults had continued beyond the moratorium period and that therefore, the Section does not provide support to the companies.

The division member bench of Rohit Kapoor (Judicial Member) and Balraj Joshi (Technical Member), has posted the matter further on 10 April.

Mehta argued that, “defaults continued even thereafter (post moratorium period provided under Section 10A) and so Section 10A cannot support them.”

In an earlier hearing, Adisri Commercial, the erstwhile promoters of the Srei group, sought to have the Kolkata Bench of the National Company Law Tribunal (NCLT) set aside the order admitting the companies as insolvents. Adisri Commercial argued that the date of the alleged default was within the black out period that is specified in Section 10A of the Insolvency and Bankruptcy Code.

Additionally, the Counsels, who represented the Srei Group companies in the insolvency proceedings, had also raised questions regarding the very order that had admitted them to the insolvency proceedings and requested the Court to set it aside.

In this regard, the Counsels had contended, “it is to be noted that the government had, by way of an ordinance in June 2020, suspended initiation of insolvency proceedings by incorporating Section 10A in the IBC, to mitigate the impact of the Covid-induced lockdown and the resultant slowdown on businesses, thereby leading to defaults. The default for which Srei Infrastructure Finance Ltd (SIFL) and Srei Equipment Finance Ltd (SEFL) were admitted into insolvency fell within this period and hence there is an error on the face of record.”

The Solicitor General then went on to discuss whether the Tribunal (NCLT) has the power to recall or review the application since a similar application had been filed before both the National Company Law Appellate Tribunal (NCLAT) and Supreme Court and was later dismissed on the merits. He contended, “the moment an appeal is dismissed by Supreme Court then that remains in the eye of law and there is no question of recalling or reviewing that order since it got merged with the order of Supreme Court.”

He further pointed out that, since there was no power of reviewing this application, it was not necessary to go into the merits of the application.

The counsels appearing for Srei Infrastructure Finance Ltd (SIFL) argued that the company did not owe any debt to banks on the day it filed for insolvency.

They stated that, as a result of the business transfer agreement, SIFL was able to transfer its lending, interest earning, and leasing businesses to its wholly-owned subsidiary, Srei Equipment Finance Ltd, as a going concern, as well as its associated employees, assets, and liabilities, as part of the slump exchange transaction.

Arun Kathpalia, representing the consolidated committee of creditors (CoC), submitted before the bench that the lenders did not sanction the business transfer agreement.

According to him, the business transfer agreement was to receive the creditors’ nod for the transfer of assets and liabilities to happen and since they did not approve of the same the question of relinquishing debt does not arise.

He further added that the issue of Section 10A was brought up earlier before both NCLAT and Supreme Court and was dismissed.