COVID Extension Does Not Waive Interest On Delayed Liquidation Payments: NCLT Mumbai

On 6 July, the Mumbai Bench of the National Company Law Tribunal (NCLT) held that a liquidator's extension of the timeline for payment of auction consideration due to COVID 19 disruptions under Regulation 47A of the Liquidation Process Regulations does not waive the successful bidder's liability to pay contractual interest for delayed payment.

Judicial Member Lakshmi Gurung and Technical Member Hariharan Neelakanta Iyer dismissed an application filed by Rudra Construction Co. seeking waiver of Rs.31.71 lakh interest, holding that the company failed to establish any ground for waiver as the COVID 19 restrictions began only after the expiry of the initial 30 day payment period. The Bench held:

“However, even if a case of extension beyond 90 days is made out in view of Regulation 47A of the Liquidation Regulations and Covid pandemic, however, we are not persuaded to hold that the same would qualify the Applicant for waiver of interest for delayed period. We cannot ignore the fact that interest payment is a commercial contract and not a task to be completed within prescribed time limit. Further, it is the Applicant's own case that lockdown continued till 15.06.2021, but the entire payment was made only by 15.09.2021.”

The corporate debtor, S Kumars Nationwide Ltd, entered the corporate insolvency resolution process on 24 April 2018 and the Tribunal ordered its liquidation on 19 June 2019. After the liquidator cancelled an earlier auction due to the pandemic, the liquidator conducted a fresh e auction on 2 March 2021, in which Rudra Construction emerged as the successful bidder for the Amana Mill property.

Under the Letter of Intent dated 4 March 2021, Rudra Construction had to pay the balance sale consideration within 30 days. The terms provided that the company would pay interest at 12% per annum if it delayed payment. Rudra Construction completed the payment only on 15 September 2021 after the liquidator granted extensions due to COVID 19 related disruptions.

Rudra Construction argued that the second wave of COVID 19 and lockdown restrictions caused the delay and relied on Regulation 47A of the Liquidation Process Regulations to seek waiver of interest. The liquidator opposed the application, stating that the auction terms and Letter of Intent expressly required payment of interest for delayed payments and that Rudra Construction had accepted these conditions while participating in the auction.

The Tribunal acknowledged the severe impact of the second wave of COVID 19 on businesses and held that the pandemic contributed to the delay in payment. It observed that Rule 12 of Schedule I to the Liquidation Process Regulations was mandatory but had to be read along with Regulation 47A, which empowered the liquidator to extend timelines for liquidation activities affected by the lockdown. The Bench held:

“Rule 12 of Schedule I has been held to be mandatory but when read with Regulation 47A of the Liquidation Regulations, in our considered view, enables the Liquidator to extend the liquidation activity which could not be completed due to lock-down. Thus, the extension of timeline given by the Liquidator considering the Covid pandemic is justified and as such, cancellation of sale as per the mandate of Rule 12 of Schedule I under Regulation 33 of the Liquidation Regulations may not be justified under the facts and circumstances of the present case.”

However, the Tribunal held that the extension granted by the liquidator did not entitle Rudra Construction to waiver of interest. It observed that payment of interest formed part of the commercial terms accepted by the bidder and Rudra Construction failed to complete payment until 15 September 2021, despite claiming that lockdown restrictions continued only until 15 June 2021.

Accordingly, the NCLT dismissed Rudra Construction's application and held that the company could not claim waiver of interest for delayed payment.

For the Applicant: Adv. Pratik Tripathi

For the Respondent: Adv. Prakash Shinde a/w Ruchita Jain I/b MDP Legal