In a significant development in insolvency law, the National Company Law Appellate Tribunal (NCLAT) has upheld the National Company Law Tribunal’s (NCLT) decision to dismiss an insolvency petition filed against a major media company. The plea, initiated by a financial creditor over unpaid dues of approximately ₹150 crore, was found to be non-maintainable under the Insolvency and Bankruptcy Code, 2016 (IBC).
The NCLT, Mumbai Bench, had previously held that the alleged default was protected under Section 10A of the IBC, which suspends initiation of corporate insolvency resolution processes for defaults occurring between 25 March 2020 and 25 March 2021—the period impacted by the COVID-19 pandemic.
The dispute arose from a guarantee agreement executed in 2012, wherein the corporate entity agreed to maintain a Debt Service Reserve Account (DSRA) in relation to a working capital loan extended by the creditor to a third party. The borrower’s account was classified as a non-performing asset in December 2019, but the guarantee was only invoked in March 2021, seeking over ₹60 crore in dues.
In its defence, the corporate debtor contended that its liability was limited—restricted only to interest payments on the original loan facility of ₹50 crore—and not extended to principal dues or revised credit limits. Furthermore, it asserted that the recall of the loan facility in February 2021 terminated any continuing obligation under the DSRA.
The appellate tribunal observed that the insolvency proceedings were initiated based on a demand notice issued in March 2021. Since this demand fell squarely within the period protected under Section 10A, the tribunal concluded that the proceedings were barred by law. However, the tribunal allowed the creditor the liberty to file a fresh application for any defaults outside the protected COVID-19 period.
This ruling reinforces the importance of Section 10A as a legislative shield against pandemic-related financial stress and serves as a crucial precedent in corporate debt resolution and banking dispute litigation. The decision provides clarity on how guarantee obligations are treated when enforcement actions fall within the statutory moratorium period.
As corporate India continues to navigate debt recovery challenges, this case underscores the need for careful assessment of default timelines, enforcement triggers, and the interplay of contractual obligations with statutory relief provisions under the Insolvency and Bankruptcy Code.
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