Case Note & Summary
The dispute arose from an appeal filed by Vivriti Capital Ltd. against the order of the Adjudicating Authority, which rejected its Section 7 application under the Insolvency and Bankruptcy Code, 2016. The appellant sanctioned a non-revolving rupee term loan of Rs. 5,00,00,000 to Gensol Electric Vehicles Pvt. Ltd. on 03.08.2024, with the loan amount disbursed on 05.08.2024. The corporate debtor defaulted on the payment due on 05.03.2025, leading the appellant to issue a notice on 17.04.2025 claiming Rs. 18,68,342. Despite this, the appellant adjusted amounts from cash collateral towards the defaulted payment. A loan recall notice was issued on 02.05.2025, stating an outstanding amount of Rs. 3,87,87,657. The Adjudicating Authority rejected the Section 7 application, stating that the date of default was incorrectly mentioned and that the default had been cured by cash collateral adjustments. The appellant contended that the cash collateral was merely security and did not affect the date of default. The court analyzed the arguments and concluded that the Adjudicating Authority's reasoning was flawed, as the definition of default under Section 3(12) of the Code indicates that a default cannot be retrospectively cured. The court set aside the impugned order and revived the Section 7 application, directing the Adjudicating Authority to pass a fresh order expeditiously. The appeal was thus disposed of.
Headnote
A) Insolvency Law - Definition of Default - Historical Default Cannot Be Cured by Subsequent Payments - Insolvency and Bankruptcy Code, 2016, Section 3(12) - The court held that once a default has occurred, it cannot be retrospectively cured by subsequent payments, which are only relevant for computing outstanding amounts. The Adjudicating Authority's conclusion that the default was cured by cash collateral adjustments was incorrect. (Paras 10-11).
Issue of Consideration
Whether the Adjudicating Authority erred in rejecting the Section 7 application based on the date of default and cash collateral adjustments.
Final Decision
The court set aside the impugned order rejecting the Section 7 application and revived it for fresh consideration by the Adjudicating Authority, directing an expeditious order within six months.
Law Points
- Insolvency proceedings
- default definition
- cash collateral adjustment
- Section 7 application
- financial debt
