Fresh Section 7 IBC Application Maintainable for Default under Restructured Terms: NCLAT

The NCLAT New Delhi Bench has held that Section 10A of the Insolvency and Bankruptcy Code, 2016 does not bar parties from entering into a debt restructuring arrangement during or after the Section 10A period. Where default occurs under restructured terms, a fresh application under Section 7 of the IBC is maintainable.

In the present case concerning Frost International Ltd., a Guarantee Agreement was executed by the Corporate Debtor in favour of the Financial Creditor. The default led to classification of Non-Convertible Debentures as NPAs during the Section 10A period. The debt was subsequently assigned by ECL Finance to CFM ARC. Later, following default under restructured terms, a Section 7 application was filed by the Debenture Trustee, which was admitted against the Corporate Guarantor.

The Appellant, Gangadhar A., argued that the default notice to the Corporate Guarantor was issued during the Section 10A period and that once a guarantee is invoked, a fresh cause of action cannot be created through restructuring.

The Tribunal rejected this argument, holding that the guarantee was a continuing guarantee and that the parties had entered into a valid restructuring agreement. It observed that default under the restructured terms gave rise to a new cause of action. The Adjudicating Authority was therefore justified in admitting the application under Section 7 of the IBC, based on the default under the restructured terms.

Relying on the terms of the Guarantee Deed and the restructuring agreement, the Tribunal reaffirmed that Section 10A does not restrict debt restructuring and does not prevent creditors from initiating insolvency proceedings for defaults occurring after the protected period.

Accordingly, the Appellate Tribunal upheld the NCLT’s order and dismissed the appeal.

Gangadhar A. vs. Catalyst Trusteeship Ltd. & Ors. 

Company Appeal (AT) (Insolvency) No. 698 of 2025