Pranav B Prem

The National Company Law Tribunal (NCLT), Mumbai Bench – VI, comprising Shri Nilesh Sharma (Judicial Member) and Shri Sameer Kakar (Technical Member), has admitted a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) filed by Unity Small Finance Bank Limited against Bafna Motors Private Limited, holding that defaults committed after the expiry of the Section 10A suspension period are sufficient to trigger the Corporate Insolvency Resolution Process (CIRP). The Bench further held that interest liability shall not come to an end merely because the default of the principal amount occurred during the Section 10A period.

Also Read: NCLT Kochi Approves Capital Reduction Of Cochin Aircraft Maintenance Company; Finds Proposal Commercially Sound And Lawful

Background

The financial creditor, Unity Small Finance Bank Limited, formerly known as Punjab and Maharashtra Co-operative (PMC) Bank, had extended credit facilities to the tune of ₹20 crore to the corporate debtor, Bafna Motors Pvt. Ltd. These included a cash credit limit of ₹17.5 crore, a mortgage term loan of ₹2.5 crore, and a funded interest term loan (FITL) of ₹1.04 crore. The accounts of the corporate debtor were declared Non-Performing Assets (NPA) on 31 March 2021, leading to the issuance of a demand notice under Section 13(2) of the SARFAESI Act, 2002. Despite part payment from the sale of mortgaged property, an amount of ₹19.83 crore remained unpaid. Consequently, the bank filed an application under Section 7 of the IBC to initiate insolvency proceedings. The tribunal noted that although certain amounts became due during the COVID-19 suspension period under Section 10A, the borrower continued to default even after the suspension period ended, and the outstanding debt exceeded the statutory threshold under Section 4 of the IBC.

Findings and Analysis

The Bench examined the sanction letters, loan agreements, and statements of account produced by the financial creditor, which established the existence of a financial debt and continuing default. It was observed that the first default occurred on 31.03.2021, when the account was classified as NPA. A subsequent default occurred on 03.12.2024, when the corporate debtor failed to pay the outstanding dues after receiving a fresh demand notice dated 22.11.2024.

Referring to the acknowledgment of debt dated 01.06.2022, the Bench held that the period of limitation stood extended under Section 18 of the Limitation Act, 1963. The limitation period, which was to expire on 31.03.2024, was extended by three years from 01.06.2022. Thus, the application filed on 18.01.2025 was held to be within limitation. The Tribunal also noted that the total outstanding debt amounted to ₹20.01 crore, which included interest and penal charges. The application was found to be complete in all respects, supported by relevant documents including the NeSL record of default, which authenticated the debt.

Application of Section 10A and Liability of Interest

Addressing the issue of the Section 10A bar, the Tribunal referred to the NCLAT’s ruling in Bikram Bhadur v. Union of India & Anr. (Company Appeal (AT) (Ins) No. 1289 of 2024), where it was held that while defaults during the 10A period are exempt from insolvency proceedings, defaults after the suspension period remain actionable if they independently cross the threshold limit. Following this reasoning, the Bench observed: “Even if we exclude the default committed during the 10A period, the default post-31.03.2021 was sufficient to initiate proceedings under Section 7.”

The Tribunal further relied on the NCLAT’s decision in Vinod Kumar v. Omkara Asset Reconstruction Pvt. Ltd. & Anr. (Company Appeal (AT) (Ins) No. 2265 of 2024), which clarified that the liability to pay interest continues even if the principal default occurred during the 10A period, and the quantum of claim is to be determined later by the Resolution Professional during the CIRP. Adopting this view, the Bench held: “Interest liability shall not come to an end merely on the ground that default of principal amount fell during the 10A period. The question as to what should be the amount of claim of the financial creditor is not to be determined at the time of admission of the Section 7 application but during collation and verification by the Resolution Professional.”

Finding that the debt exceeded the threshold limit of ₹1 crore and the default was established, the NCLT admitted the petition under Section 7 of the IBC and declared a moratorium under Section 14. The Bench appointed Mr. Shailesh Bhalchandran Desai as the Interim Resolution Professional (IRP) and directed the financial creditor to deposit ₹3 lakh towards initial CIRP costs. The Registry was instructed to forward a copy of the order to the Registrar of Companies (ROC), Maharashtra and the Insolvency and Bankruptcy Board of India (IBBI) for record.

Also Read: NCLT Approves Demerger of HUL’s Ice Cream Business into Kwality Wall’s (India) Limited

The NCLT Mumbai held that defaults committed after the 10A suspension period are sufficient to trigger insolvency proceedings, and interest liability continues even if the principal default occurred during the 10A period. Accordingly, the tribunal admitted the Section 7 petition, commenced CIRP against Bafna Motors Pvt. Ltd., and imposed a moratorium on all proceedings against the company.

Appearance

Financial Creditor: Adv. Mr. Roshan Agarwal a/w Adv. Ms. Janhavi Hirlekar & Adv. Ms. Princi Jaiswal i/b Dhir & Dhir Associates.

Corporate Debtor: Ex-Part

Cause Title: Unity Small Finance Bank Limited Vs Bafna Motors Private Limited

Case No: C.P. (IB)/344(MB)2025

Coram: Shri Nilesh Sharma (Judicial Member), Shri Sameer Kakar (Technical Member)