Mumbai, April 24: The National Company Law Tribunal (NCLT) has dismissed an interlocutory application filed by Sumer Buildcorp Private Limited, which sought to terminate insolvency proceedings initiated against it by Omkara Asset Reconstruction Pvt. Ltd.
Debt linked to corporate guarantees
The proceedings pertain to a debt arising from corporate guarantees issued by Sumer Buildcorp in 2018 in connection with loans worth over Rs 1,500 crore extended to group entities.
These include a corporate guarantee dated 30.07.2018 for sanctioning a mortgage loan of Rs 1,100 crore to Radius Estate Project Pvt. Ltd. (REPPL), and another corporate guarantee of the same date for sanctioning a mortgage loan of Rs 439.25 crore to Sumer Radius Realty Pvt. Ltd. (SRRPL).
Tribunal rules defaults actionable
While dismissing the application, the tribunal held that the defaults continued beyond the Covid-19 suspension period and were therefore “legally actionable.”
“In light of the fact that the said sanction letter was duly executed by the Corporate Debtor as a Corporate Guarantor, it was fully aware that, in the event of default in repayment of the debt, it would be liable to pay additional interest on the overdue amount. Accordingly, upon the Corporate Debtor committing default in repayment of the loan and interest on 25.02.2021 and 03.03.2021, the liability to pay such additional interest of 24% stood triggered and continued to accrue until the filing of the main petition dated 09.12.2021. It is noted that the Corporate Debtor defaulted on payment of the principal debt and interest thereon on 25.02.2021 and 03.03.2021, respectively, which fall within the Section 10A period; however, this does not extinguish its liability for defaults committed after the end of the threshold period, i.e., after 24.03.2021,” reads the order.
It further noted, “The Corporate Debtor cannot escape its liability for defaults committed beyond 24.03.2021 under the garb of the Section 10A threshold. Since the Corporate Debtor has defaulted in payment of interest beyond the period prescribed under Section 10A, the main petition is maintainable for the amount of interest calculated from 25.03.2021 up to 09.12.2021.”
Challenge to insolvency petition
The application was filed by Sumer Buildcorp under Section 60(5) of the Insolvency and Bankruptcy Code (IBC), challenging the maintainability of a Section 7 insolvency petition initiated by Omkara Asset Reconstruction Pvt. Ltd., acting as the financial creditor.
The debt arose from corporate guarantees issued by Sumer Buildcorp in 2018 in connection with loans worth over Rs 1,500 crore extended to group entities.
It was the case of the applicant, Sumer Buildcorp, that since the alleged defaults occurred on 25.02.2021 and 03.03.2021, which fall within the period prescribed under Section 10A, the financial creditor is barred from filing a petition for any default committed between 25.03.2020 and 24.03.2021. Thus, the main petition filed by the financial creditor for initiating CIRP against the applicant for the alleged default is not maintainable.
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Background and recent developments
Sumer Buildcorp was in the news in February when the BMC issued property attachment notices to a few of Mumbai’s biggest alleged property tax defaulters, warning of seizure and auction of assets for failing to clear outstanding dues. As per reports, Sumer Buildcorp was among the developers with alleged dues running into tens of crores of rupees.
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