Application under Section 9 of the I&B Code dismissed as the bar imposed under Section 10A was attracted

Application under Section 9 of the I&B Code dismissed as the bar imposed under Section 10A was attracted

The Appeal, filed by the Operational Creditor - Mr. Ramesh Kymal (Appellant) against the order of the Adjudicating Authority (NCLT, Division Bench-I, Chennai)which declined to admit the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (Code) filed by the Appellant against the Corporate Debtor-M/s. Siemens Gamesa Renewable Power Pvt. Ltd. holding that there was a bar created by law in terms of the newly inserted Section 10A coming into force, has been dismissed by the National Company Law Appellate Tribunal.

This matter mainly dealt with the limited question of interpretation of Section 10A of the Code. The Appellant contented that in the instant case, proceedings were at the stage of Section 9 (5) and when the application was filed on 11th May, 2020, it was maintainable, there being no bar on filing of such application as on 11th May, 2020. It was further submitted that Section 10A prohibits filing of application on or after 5th June, 2020 for defaults occurring during the relevant period specified in the Ordinance and not initiation of CIRP after the said date. It was also stated that once an application has been filed, Section 10A does not stand as an impediment in its admission or non-admission on the basis of merit.

The respondents have strongly refuted the submissions of the appellants by stating that Section 10A would apply to all insolvency applications which have been initiated in relation to defaults occurring post 25th March, 2020, regardless of whether such insolvency applications had been filed before the Adjudicating Authority or not. It was also submitted that if the interpretation placed on this provision by the Appellant is accepted, same would be result in creation of a class within a class insofar as creditors whose claims arise out of defaults occurring during the intervening period (25th March, 2020 and 05th June, 2020), but have actually not filed proceedings and those who have merely completed such filing.

The Appellate Authority has elaborately explained that with respect to the newly inserted Section 10A, it is manifestly clear that the Section, beginning with a non-obstante clause overriding provisions of Sections 7, 9 & 10 of the Code places an embargo on filing of application for initiation of CIRP of a Corporate Debtor for any default arising on or after 25th March, 2020 for a period of six months or such further period as may be notified but not exceeding one year from such date. This provision is clearly prohibitory in nature and filing of applications under Sections 7, 9 & 10 in respect of default arising on or after 25th March, 2020 is clearly barred for the specified period of six months or the extended period not exceeding one year, if so notified. Proviso to this main provision creates a further bar qua a default that may occur during the specified period.

It has also been stressed that the intended object of the Ordinance is to prevent corporate persons experiencing distress due to impact of COVID-19 pandemic. Any other interpretation would lead to absurdity and defeat the object of the amending Ordinance. The explanation clarifies that Section 10A cannot be interpreted to apply the embargo in terms of main provision to any default committed before 25th March, 2020.

The commencement of CIRP in each case falling within the purview of Sections 7, 9 & 10 would thus, be from the date of passing of order of admission of application by the Adjudicating Authority. The bar on initiation cannot operate in respect of applications filed for initiation of CIRP by the eligible applicant in respect of default committed before 25th March, 2020 though such application has been filed after 25th March, 2020 but before enforcement of Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 on 5th June, 2020.

It was observed by the Appellate Tribunal that in the present matter the application to the Adjudicating Authority as also in Form-3 i.e. Demand Notice, the Appellant- Operational Creditor has specified 30th April, 2020 as the date of default which clearly goes beyond the cut-off date. Therefore, the Adjudicating Authority was perfectly justified in rejecting the application under Section 9 at the instance of Appellant as the default has occurred after the cut-off date and the bar imposed under Section 10A was clearly attracted.