### Section 10A Bar Is Inapplicable Where Default Arises From Invoices Predating the Statutory Suspension Period

In brief

The question

Whether a default arising from invoices dated in 2019 is barred by Section 10A of the IBC if payments were subsequently made and cheques were dishonored during the 10A suspension period.

The court held

The Tribunal held that Section 10A does not disqualify applications for defaults occurring prior to 25.03.2020, even if subsequent payment attempts failed during the suspension period.

It also directed

The date of default was determined to be 19.10.2019.

Consequently, the Appellate Tribunal found no merit in the appeal, upheld the NCLT's order initiating CIRP, and dismissed the appeal without costs.

01Facts

The Appellant, a suspended Director of M/s Western Energetics Pvt. Ltd. (Corporate Debtor), challenged an order dated 19.09.2023 passed by the NCLT, Jaipur, which admitted a Section 9 application under the Insolvency and Bankruptcy Code, 2016 (IBC).

pp. 1-2

The Respondent No. 1 (Operational Creditor) supplied material to the Corporate Debtor via invoices dated between 20.04.2019 and 19.09.2019.

p. 6

Each invoice required payment within 30 days.

p. 6

The Appellant contended that since they maintained a "running account," the default should be reckoned from the date the last payment cheques were dishonored (29.01.2021).

p. 3

This date falls within the Section 10A suspension period (25.03.2020 to 24.03.2021), during which no insolvency proceedings can be initiated for defaults.

pp. 4-5

02Issues

i.Whether a default arising from invoices dated in 2019 is barred by Section 10A of the IBC if payments were subsequently made and cheques were dishonored during the 10A suspension period.

p. 5 / para. 7

ii.Whether the existence of a running account shifts the date of default to the date of the last transaction or dishonor of a cheque.

p. 3 / para. 3

03Law Applied

The court applied Section 10A of the IBC, which prohibits the filing of applications for CIRP for any default arising on or after 25.03.2020 for a period of up to one year, while clarifying that this suspension does not apply to defaults committed before 25.03.2020.

p. 5

It also relied on Section 3(12) of the IBC, which defines "default" as the non-payment of debt when it becomes due and payable.

p. 6

The Tribunal cited *Vishal Agarwal v. ICICI Prudential Real Estate AIF-1* regarding the non-extension of Section 10A to prior defaults.

pp. 8-9

The Tribunal cited *Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd.* regarding the requirements for admitting Section 9 applications.

pp. 8-9

04Reasoning

The Tribunal found that the invoices were raised between April and September 2019, and per the 30-day payment clause, the final default occurred by 19.10.2019.

p. 7

Since this date preceded the 25.03.2020 cutoff, Section 10A was inapplicable.

p. 8

The Tribunal rejected the Appellant's argument that the dishonor of cheques on 29.01.2021 created a new date of default within the 10A period, stating that subsequent dishonor of cheques issued to discharge pre-existing liabilities does not shift the original due date of the debt.

p. 7

Furthermore, the Tribunal negated the "running account" plea, observing that the Section 9 application was explicitly based on the 2019 invoice defaults rather than the 2021 cheque dishonor.

p. 8

05Holding

The Tribunal held that Section 10A does not disqualify applications for defaults occurring prior to 25.03.2020, even if subsequent payment attempts failed during the suspension period.

p. 9

The date of default was determined to be 19.10.2019.

pp. 7-8

Consequently, the Appellate Tribunal found no merit in the appeal, upheld the NCLT's order initiating CIRP, and dismissed the appeal without costs.

p. 9

LawLens.NCLAT

Original Court PDF