NCLAT Delhi Interprets Section 10A IBC Bar: Default Must Be 'Due and Payable', RBI Moratorium Precludes CIRP Initiation

The intersection of pandemic-era regulatory reliefs and insolvency proceedings has generated significant jurisprudential debate, particularly concerning the exact determination of a default date. In a comprehensive ruling, the National Company Law Appellate Tribunal (NCLAT), Delhi, in the matter of JC Flowers Asset Reconstruction Private Limited Vs Laxmi Oil and Vanaspati Private Limited, has provided critical clarity on this subject. The appellate tribunal dismissed an appeal filed by a financial creditor against the rejection of its application under Section 7 of the Insolvency & Bankruptcy Code, 2016.

The judgment meticulously examines the statutory definition of "default" under Section 3(12) of the Insolvency & Bankruptcy Code, 2016, the protective umbrella of the Reserve Bank of India (RBI) COVID-19 moratorium, and the absolute prohibition on initiating Corporate Insolvency Resolution Process (CIRP) embedded in Section 10A.

Background of the Financial Dispute

The origins of the dispute trace back to a credit facility extended by Yes Bank Limited (the original financial creditor) to Laxmi Oil and Vanaspati Private Limited (the corporate debtor). On 26.03.2017, a cash credit facility amounting to Rs. 10 Crores was sanctioned for a 12-month tenure, secured by an exclusive charge on residential property. This arrangement was formalized through a Master Facility Agreement executed on 29.03.2017.

Subsequently, the financial accommodation was enhanced to Rs. 20 Crores via a letter dated 15.02.2018, with validity extended initially to 22.01.2019 and later to 24.07.2019. To formalize these enhancements, a Supplementary Master Facility Agreement and a Deed of Hypothecation were executed on 21.02.2018. The credit facilities were further fortified by letters of continuing guarantees dated 02.02.2018 and 08.05.2018, provided by personal guarantors including Mr. Shib Shankar Roy, Kamal Deep Tripathi, Satish Kumar Rawat, Keshav Singh Gaur, Ms. Tarulata Biswas, and Nipun Garg.

During the appellate proceedings, an interlocutory application was filed under Rule 11 read with Rule 31 of the National Company Law Appellate Tribunal Rules, 2016. This application sought to substitute Yes Bank Limited with JC Flowers Asset Reconstruction Private Limited, following an assignment agreement executed on 16.12.2022. The NCLAT allowed this substitution on 06.03.2023, allowing the assignee to step into the shoes of the original appellant.

The Creditor's Allegations of Default

The financial creditor approached the Adjudicating Authority (NCLT, Allahabad Bench) under Section 7 of the Insolvency & Bankruptcy Code, 2016, alleging that the corporate debtor had failed to maintain financial discipline. According to the creditor's submissions, the corporate debtor exhibited delays in servicing interest for November 2019, December 2019, and January 2020. Although these specific interest amounts were eventually paid on 26.02.2020 and 27.02.2020, the creditor argued that a subsequent default triggered the insolvency action.