Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has held that an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), is maintainable if the default, including on the interest component, occurs after the expiry of the prohibition period under Section 10A of the Code and the statutory threshold under Section 4 is satisfied. The Bench comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) dismissed an appeal filed against the order of the Adjudicating Authority (NCLT, Chandigarh Bench) admitting a Section 7 petition, while clarifying that the bar under Section 10A does not wipe out continuing interest liability that accrues after the protected period.

"What is prohibited by Section 10A is not to initiate any Application for default committed by CD during 10A period. In event, the CD defaults after the end of 10A period, the said default can very well be made basis for any Application under Section 7," the Tribunal held.

Background

In 2016, IndusInd Bank sanctioned a term loan of ₹300 crores to G.P. Realtors Pvt. Ltd. for developing an IT-SEZ project in Gurgaon. The loan, repayable in a one-shot bullet payment after 48 months, carried an agreed interest rate of 11% per annum and a default rate of 18.75% per annum. The repayment schedule provided that the bullet payment was due at the end of 48 months, which was later extended to February 11, 2021.

Also Read: “Trial Was Not Conducted in a Fair Manner”: Supreme Court Sets Aside Death Penalty in Child Rape-Murder Case Over Illegally Admitted Confession and DNA Evidence Lapses

The Financial Creditor issued a demand notice on 01.06.2021, claiming a total amount of ₹288,07,04,504/-, which included ₹272.66 crores as principal and ₹15.40 crores towards interest. A demand notice under Section 13(2) of the SARFAESI Act was also issued on 03.09.2021.

A Section 7 application was filed on 09.06.2021, stating a default amounting to ₹291.42 crores, which included default interest from 26.03.2021 to 31.05.2021 totaling ₹9,38,44,668/-. The Adjudicating Authority admitted the petition, holding that the interest default exceeded the statutory threshold of ₹1 crore under Section 4 of the Code.

Appellant’s Contentions

The suspended director of the Corporate Debtor argued that the entire loan account fell into default on 11.02.2021, a date which fell within the suspension period covered by Section 10A. It was contended that interest is linked to the principal and that no separate identifiable default in interest payment could be established post-10A. The appellant further submitted that the NCLT erred in admitting the application as the default in principal was within the 10A period and the interest component is an ancillary liability. The invocation of CIRP based on the interest alone was contrary to law.

Respondent’s Arguments

Omkara Asset Reconstruction Pvt. Ltd., to whom the debt had been assigned, submitted that the interest default between 26.03.2021 to 31.05.2021 exceeded ₹1 crore and was independent of the principal. It was argued that each failure to pay interest constituted a fresh cause of action and that such default, being after the 10A period, validly formed the basis of the Section 7 application. The Respondent argued: "The Financial Creditor was fully entitled to file the Application under Section 7 of the Code and the ground that the Application is barred under Section 10A has rightly been rejected."

NCLAT’s Observations

The Tribunal observed that the principal amount became due on 11.02.2021, which admittedly fell within the 10A suspension period. Therefore, the default of the principal sum could not be made the basis of a Section 7 application.

However, the Tribunal emphasized that the interest liability did not cease due to the prohibition under Section 10A. Referring to the terms of the loan agreement and facility documents, it noted that the Corporate Debtor was liable to pay monthly interest even after the expiry of the 10A period. 

"The interest liability shall not come to an end merely on the ground that default of principal amount fell during 10A period. The interest was payable on outstanding loan as per the terms of the Facility Agreement."

The Bench further held: "If the outstanding amount continues even after 10A period, the interest liability on outstanding amount on the CD shall not come to an end."

In support, the Tribunal referred to Harish Raghavji Patel V. Clearwater Capital Partners Singapore Fund IV Private Ltd.(2023) SCC OnLine NCLAT 2367 , where it had upheld a Section 7 petition based on post-10A default in payment of interest. It also relied on the earlier decision in Office Beanz Pvt. Ltd. Company Appeal (AT) (Ins.) No.1725 of 2025 to reiterate that defaults that occurred during the 10A period cannot be made the basis for initiation of CIRP even after the expiry of the 10A period, but defaults after the 10A period are actionable.

"Section 10A cannot be read to mean that the Application can be filed after the period is over for a default which took place during the 10A period."

Also Read: “‘Court Lacking Inherent Jurisdiction Cannot Be Vested With It By Consent’: J&K High Court Quashes Proceedings in Negotiable Instruments Act Complaint”

Accordingly, the Tribunal found that the default of ₹9,38,44,668/- due on account of unpaid interest after 26.03.2021 met the statutory threshold, and thus the Section 7 application was rightly admitted.

“We, thus, are of the view that the Adjudicating Authority has not committed any error in admitting the Application under Section 7 of the Code.”

Verdict

The NCLAT dismissed the appeal filed by the suspended director of G.P. Realtors Pvt. Ltd., thereby upholding the admission of the Section 7 application by the NCLT, Chandigarh Bench. It affirmed that the interest default of ₹9.38 crore occurring after the expiry of the Section 10A suspension period constituted a valid basis for initiating the Corporate Insolvency Resolution Process (CIRP). The Tribunal found no error in the Adjudicating Authority's determination that the financial creditor's application met the statutory threshold and was in compliance with the Code.

Appearance

For Appellant: Mr. Abhijeet Sinha, Sr. Advocate with Mr. Abhishek Anand, Mrs. Priyadarshini Dewan, Ms. Shankari Mishra, Ms. Heena Kochar, Ms. Devna Soni, Mr. Ashish Garg, Mr. Shubham Aggarwal, Ms. Simran Bajaj, Ms. Niti Khanna, Ms. Devna Soni, Mr. Jatin Sehgal, Advocates.

For Respondents: Mr. Arun Kathpalia Sr. Advocate with Mr. Siddhant Kant, Ms. Diksha Gupta, Mr. Aditya Dhupar, Mr. Satyajit Bose and Ms. Sanyukta Fauzdar, Advocates

Cause Title: Vinod Kumar V. Omkara Asset Reconstruction Pvt. Ltd. & Anr

Case No: Company Appeal (AT) (Insolvency) No.2265 of 2024

Coram: Justice Ashok Bhushan [Chairperson], Barun Mitra [Member (Technical)]

[Read/Download order]