Introduction

The case of Yatra Online Limited vs. Ezeego One Travel & Tours Limited adjudicated by the National Company Law Appellate Tribunal (NCLAT) on March 31, 2023, presents significant insights into the interpretation and application of the Insolvency and Bankruptcy Code, 2016 (IBC). The principal issue revolved around the correct determination of the date of default, which is pivotal in determining the maintainability of insolvency applications under sections 7, 9, and 10 of the IBC.

The parties involved were Yatra Online Limited (the Appellant) and Ezeego One Travel & Tours Limited (the Respondent), represented by a Resolution Professional. The Tribunal's decision sheds light on the rigid adherence to initial pleadings concerning the date of default and underscores the limitations imposed by Section 10A of the IBC amidst the COVID-19 pandemic.

Summary of the Judgment

The Appellant contested the order passed by the Adjudicating Authority of the National Company Law Tribunal (NCLT), Mumbai Bench, which dismissed an application filed under Section 9 of the IBC by the Operational Creditor, the Respondent. The dismissal was based on the grounds that the application was not maintainable under Section 10A of the IBC, which prevents insolvency filings based on defaults occurring between March 25, 2020, and March 24, 2021.

Central to the dispute was the date of default cited by both parties. The Appellant maintained that the default occurred on October 30, 2020, as mentioned in the demand notice and the Section 9 application. Conversely, the Respondent argued for an earlier default date of July 2019, aiming to circumvent the restrictions of Section 10A.

Upon deliberation, the NCLAT found merit in the Appellant's argument, emphasizing that the Respondent did not seek to amend the default date in the original pleadings but rather introduced a new date in the Section 10A application. Consequently, the Tribunal set aside the Adjudicating Authority's order, dismissing both the Section 9 and Section 10A applications.

Analysis

Precedents Cited

The Tribunal extensively referred to several landmark Supreme Court judgments to substantiate its decision:

• Ramesh Kymal Vs. Siemens Gamesa Renewable Power Private Limited (2021):

3 SCC 224

This case underscored that attempts to alter the date of default from what was originally disclosed in the demand notice and Section 9 application are untenable. The Tribunal leverages this precedent to reinforce the immutability of the initial default date.

• Dena Bank (Now Bank of Baroda) Vs. C. Shivakumar Reddy & Anr. (2021):

10 SCC 330

Highlighting the flexibility in amending pleadings and filing additional documents, this judgment was cited to acknowledge that while amendments are permissible, they must adhere to procedural correctness and bona fide intentions.

• Rajendra Narottamdas Sheth and Anr. Vs. Chandra Prakash Jain and Anr. (2022):

5 SCC 600

Emphasizing the responsibility of financial creditors to provide accurate default details, this case was pivotal in affirming that the burden of establishing a prima facie case of default lies with the creditor.

• Kotak Mahindra bank Limited Vs. Kew Precision Parts Pvt. Ltd. and Ors. (2022):

9 SCC 364

This judgment clarified that additional affidavits and pleadings can be construed as part of the initial application, but they must not be used to introduce new facts or dates post-filing.

Legal Reasoning

The NCLAT's legal reasoning was anchored in the rigid interpretation of the IBC's provisions regarding the date of default. It emphasized that the date mentioned in the demand notice and the Section 9 application forms the foundational basis for initiating insolvency proceedings. Any deviation or attempt to alter this date without following proper amendment procedures undermines the credibility of the proceedings.

The Tribunal pointed out that the Respondent failed to seek an amendment to the original default date within the stipulated framework and instead attempted to introduce a new date in the Section 10A application. This maneuver was deemed an attempt to exploit Section 10A's protective provisions, which were enacted in response to the COVID-19 crisis, to shield the debtor from insolvency proceedings.

Furthermore, the Tribunal distinguished between different sections of the IBC, noting that previous Supreme Court interpretations pertinent to Section 7 applications do not seamlessly apply to Section 9 proceedings. This nuanced understanding ensured the correct application of legal principles tailored to the specific context of the case.

Impact

This judgment reinforces the sanctity of initial pleadings concerning the date of default in IBC proceedings. By asserting that the default date cannot be altered without proper amendments, the NCLAT ensures greater predictability and fairness in insolvency processes. Creditors must meticulously verify default dates before filing applications to avoid procedural lapses that could render their claims unenforceable.

Additionally, the decision clarifies the scope of Section 10A, delineating clear boundaries on how and when it can be invoked. This clarity is crucial for operational creditors to navigate insolvency filings without inadvertently contravening protective provisions introduced during exceptional circumstances like the pandemic.

Future cases will likely reference this judgment to uphold the integrity of default dates, preventing strategic manipulations that could undermine the IBC's efficacy in resolving corporate insolvencies.

Complex Concepts Simplified

• Section 9 of the IBC: Allows operational creditors to initiate insolvency proceedings against a defaulting corporate debtor for unpaid operational credit. It is triggered after delivering a demand notice under Section 8 and waiting for a response.
• Section 10A of the IBC: Introduced as a temporary measure during the COVID-19 pandemic, it restricts the initiation of insolvency proceedings based on defaults that occurred between March 25, 2020, and March 24, 2021, providing a moratorium period.
• Date of Default: The specific date from which the debtor is considered to have defaulted on their obligations, initiating the timeline for insolvency proceedings.
• Operational Creditor: A creditor who is entitled to receive operational credit (short-term credit) from the debtor in the ordinary course of business.
• Resolution Professional (RP): A professional appointed to manage the affairs of the corporate debtor during the insolvency resolution process.

Conclusion

The NCLAT's decision in Yatra Online Limited vs. Ezeego One Travel & Tours Limited underscores the imperative for operational creditors to maintain consistency and accuracy in their insolvency applications, particularly concerning the date of default. By invalidating the Respondent's attempt to alter the default date post-filing, the Tribunal reinforces the principle that initial pleadings hold paramount importance in IBC proceedings.

This judgment not only clarifies the application of Section 10A amidst extraordinary circumstances but also fortifies the structured framework of the IBC, ensuring that insolvency resolutions proceed on well-defined legal grounds. Stakeholders in insolvency processes must heed this precedent to uphold procedural integrity and safeguard their interests within the ambit of the law.