NCLAT Ruling: Grace Periods and the Determination of Default Dates under IBC

The National Company Law Appellate Tribunal (NCLAT), Delhi, has delivered a significant judgment regarding the interpretation of "default" dates when contractual cure periods are involved. In the matter of Kewal Krishan Sharma Vs Navneet Gupta, the Appellate Tribunal ruled that a grace period granted under a settlement agreement merely provides the debtor an opportunity to rectify a missed payment; it does not postpone the actual date of default. Consequently, if the default and the expiry of the cure period occur prior to March 25, 2020, the debtor cannot claim immunity under Section 10A of the Insolvency and Bankruptcy Code, 2016.

Factual Matrix of the Dispute

The case arose from an appeal filed by the suspended director of Majestic Hotels Limited (the Corporate Debtor) against an admission order passed by the National Company Law Tribunal (NCLT).

The Debt History

The Corporate Debtor had originally availed term loans from Tourism Finance Corporation of India (TFCI) and IFCI for hotel construction. Over time, the account was classified as a Non-Performing Asset (NPA). Subsequently, U.V. Asset Reconstruction Company Limited (the Financial Creditor) acquired these debts via assignment deeds.

To resolve the outstanding dues, the parties entered into a settlement arrangement. A Memorandum of Understanding (MoU) dated December 29, 2017, was executed, restructuring the debt to Rs. 16.25 Crores, payable in installments.