RBI Moratorium and Section 10A Bar CIRP for March 2020 Default: NCLAT Delhi

JC Flowers Asset Reconstruction Private Limited Vs Laxmi Oil and Vanaspati Private Limited (NCLAT Delhi)

Summary: NCLAT Delhi dismissed the financial creditor’s appeal against rejection of its Section 7 IBC application, holding that the alleged default could not validly be fixed at 28.02.2020 merely because interest became due on that date. The lender itself stated that monthly interest became due on the last day of the month but was payable on the first day of the following month. Applying Section 3(12), NCLAT stressed that a “default” occurs only when a debt has become both “due and payable” and remains unpaid. Accordingly, even on the lender’s case, the February 2020 interest became payable only on 01.03.2020.

That date was covered by RBI’s COVID-19 moratorium beginning 01.03.2020, subsequently extended through 31.08.2020. The account was classified NPA on 20.07.2020 and the loan was recalled on 27.08.2020, both falling within the period protected by Section 10A. NCLAT also noted that the loan recall notice attributed the NPA classification to non-submission of stock statements rather than default in payment of debt.

Relying on Ramesh Kymal v. Siemens Gamesa Renewable Power Pvt. Ltd., NCLAT reiterated that Section 10A permanently bars CIRP applications founded on defaults occurring during the protected period, although the underlying debt and other recovery remedies survive. The Tribunal therefore held that the creditor was not entitled to initiate CIRP, dismissed the appeal without costs and preserved its other remedies for recovery.