Summary: The distinction between the date of Non-Performing Asset (NPA) declaration and the date of default is crucial in the context of the Insolvency and Bankruptcy Code (IBC), 2016. An asset is classified as an NPA under the RBI guidelines when it stops generating income for the bank, specifically when a loan’s principal or interest remains overdue for more than 90 days. In contrast, the date of default is the specific day when the debtor fails to pay the amount due, as defined under Section 3(12) of the IBC. Importantly, the date of default typically precedes the NPA declaration date since a loan is only classified as NPA after it has been overdue for 90 days. The confusion often arises when banks attempt to use the NPA declaration date to bypass the plea of time-barred debt by corporate debtors. However, it is essential to recognize that the NPA declaration date and the default date are distinct and governed by different regulations. Thus, they should not be used interchangeably in insolvency proceedings under the IBC.
Introduction: The conflict in calculating the limitation period for an application for the Corporate Insolvency Resolution Process has caused confusion among professionals. The definition of non-performing assets (NPA) and the date of default is clearly outlined as follows:
Date of declaration of NPA Vs. Date of Default
As per the RBI Master Circular dated 01 April 2022, an asset becomes non-performing when it ceases to generate income for the bank. In the case of a loan or advance in respect of a term loan, an NPA is determined when the interest and principal installments remain overdue for more than 90 days for a term loan as per the RBI guidelines. On the other hand, the date of default is defined under Section 3(12) of the Code as the non-payment of debt when the entire or any part of the amount of debt becomes due and payable and is not repaid by the debtor or the corporate debtor.
The date of declaration of NPA always occurs after the date of default, as a loan is declared NPA after being overdue for 90 days. Banks use the date of declaration of NPA to avoid the plea of time-barred debt by the corporate debtor. The date of default, on the other hand, refers to the date when the installment in whole or part is payable but not repaid by the corporate debtor. Both concepts are different and clearly defined under their respective statutes.
It can be stated here that the date of declaration of an asset or Loan and advance as Non-Performing Assets and the date of default shall not be used interchangeably as the meaning of Non-performing assets and Default is different. Generally, The date of default used to occur before the date of the declaration of nonperforming assets. The date of default shall be a date when the debtor fails to pay the loan amount in whole or in part. On the other hand, a loan has been overdue for more than 90 days from the date of such installment or the amount becomes payable. We can also say that the date of declaration of noin Performing Asset shall be 90 days from the date of default.
Therefore, the date of declaration of NPA shall not be equivalent to the date of default under IBC.
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