Exclusion of stay period of CIRP Petition does not amount to Postponement of Insolvency Commencement date under IBC: NCLT [Read Order]

The Mumbai bench of the National Company Law Tribunal ( NCLT ) held that the exclusion of stay period of the Corporate Insolvency Resolution Process ( CIRP ) petition does not lead to postponement of the Insolvency commencement date under the Insolvency and Bankruptcy Code, 2016 ( IBC ).

Reliance Communications Limited, the Corporate Debtor defaulted on loan repayments to China Development Bank (CDB) and other Chinese lenders, the Respondents. Consequently, CDB initiated a Corporate Insolvency Resolution Process ( CIRP ) under Section 7 of the Insolvency and Bankruptcy Code ( IBC ). In 2017, Indian lenders, led by the State Bank of India (SBI) as convenor, formed a Joint Lenders’ Forum and signed a TRA Agreement to manage the Corporate Debtor’s cash flows.

The lenders considered an asset monetization process ( AMP ) to sell the Corporate Debtor’s assets. CDB and other Chinese lenders demanded USD 200 million to consent to the AMP and withdraw the CIRP petition. SBI issued a no-objection letter (“NOC”) permitting the Corporate Debtor and Reliance Telecom Limited (“RTL”) to raise USD 200 million on an unsecured basis to pay the Respondents.

The Corporate Debtor and RTL raised approximately USD 184 million from five unsecured creditors and made payments to the Respondents. The Term Sheets indicated the funds were for these payments but did not specify that, if the AMP failed, the unsecured creditors would have recourse only to the promoters, not the Corporate Debtor’s assets, as stipulated in the SBI NOC.

As the AMP failed, Ericsson India Pvt. Ltd, Operational Creditor initiated CIRP. The NCLT directed the Interim Resolution Professional (“IRP”) to take control of the Corporate Debtor’s assets, including the TRA, and inform the financial creditors. Mr. Anish Niranjan Nanavaty (Applicant), the Resolution Professional (“RP”) of the Corporate Debtor, was obligated to honour the term sheets and admit the claims of the unsecured creditors as financial creditors.

The RP argued that the payment of Rs. 144 crores by the Corporate Debtor to the Respondent and the said transaction occurred between 15.05.2017 and 15.05.2018 within the one-year lookback period under Section 43 of IBC.

The Respondents contended that the insolvency commencement date should be May 7, 2019 and the said transaction would fall outside the lookback period under Section 43 of IBC.

The NCLT dismissed the application and held that exclusion of period of stay of CIRP petition does not lead to postponement of Insolvency commencement date under IBC. It observed that presently, the admission order for the Corporate Debtor was passed on 15.05.2018, but was stayed by the NCLAT and vacated on 30.04.2019. During the stay, the Corporate Debtor’s management was restored to its previous state with the erstwhile management.

The two bench comprising Justice V.G. Bisht (Retd.) (Judicial Member) and Mr. Prabhat Kumar (Technical Member) held that excluding the stay period does not postpone the insolvency commencement date, which is the date of the admission order as defined by IBC.

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