Creditor need not give notice of default to corporate debtor: NCLT

The Mumbai Bench of the National Company Law Tribunal (NCLT) has observed that prior notice is not required to be given by a creditor under the Insolvency & Bankruptcy Code (IBC) to establish that a corporate debtor has defaulted in making repayment.

According to Sec 3(12) of the IBC, default means non-payment of debt when the whole, a part or an instalment of the debt becomes due and is not repaid by the debtor/ corporate debtor as the case may be, said the tribunal.

In this definition, it has not been said anywhere that prior notice is required to be given to establish that the corporate debtor defaulted in making repayment to the creditor. It only says that non-payment of instalment of the amount of debt will become due and such due will become default as mentioned in this definition. “In fact, in the balance confirmation given by the corporate debtor on June 30, 2017, it has been said that this corporate debtor has to pay so and so amount towards the loan account,” said tribunal members BSV Prakash Kumar and Ravikumar Duraisamy recently while admitting State Bank of India’s petition seeking initiation of Corporate Insolvency Resolution Process (CIRP) against Videocon Telecommunications.

The NCLT members allowed initiation of the CIRP on a company petition filed by the SBI against Videocon Telecommunications, under Section 7 of the IBC, for having defaulted in making a repayment of ₹234.36 crore as on December 27, 2017.

The members’ observations come in the wake of the corporate debtor contending that no notice was given to it that it had defaulted in making repayment of the loan amount as agreed by it. To this, the petitioner (SBI) said that the percentage of the loan to be paid by instalments, has already been tabulated.

Referring to the code, the members said that it is nowhere explained that it has to be separately notified to the corporate debtor that it has d

efaulted in making repayment to the financial creditor (sub section Z(3)(a) of the code only says “record of the default recorded with the information utility or such other record or evidence of default as may be specified”).

To fulfil this mandate, the petitioner filed the report of the Central Repository of Information on Large Credits, dated December 28, 2017, reflecting this asset is classified as substandard.

SBI and its three erstwhile associate banks – State Bank of Bikaner and Jaipur, State Bank of Mysore and State Bank of Patiala – had sanctioned loans aggregating ₹1,700 crore to Videocon Telecommunications in 2010. They disbursed loans aggregating ₹799 crore, and the amount outstanding is ₹677 crore.