Case BriefsSupreme Court

Supreme Court: Dealing with the issue of limitation in cases under the Insolvency and Bankruptcy Code, 2016 (IBC), the bench of Indira Banerjee* and JK Maheshwari, JJ has held that the pendency of the proceedings in a parallel forum is not sufficient cause for the delay in filing an application under Section 9 of the IBC if by the time the application was filed, the claim had become barred by limitation.

Background

On or about 22.12.2015, the Respondent filed a Winding Up petition dated 04.07.2015 in the Madras High Court.

On 05.01.2016, the High Court returned the Winding Up petition to the Respondent for curing of defects. The Winding Up petition was represented on 03.02.2016, but again returned on 24.05.2016 with an endorsement to comply with the defects as intimated earlier.

The IBC came into force on 01.12.2016. Thereafter the Respondent issued a demand notice on 14.11.2017 under Section 8(1) calling upon the Appellant to repay its dues.

On 30.03.2018, the Respondent filed petition under Section 9 of the IBC for initiation of the Corporate Insolvency Resolution Process (CIRP) in the NCLT. By an order dated 02.01.2019, the Adjudicating Authority (NCLT) rejected the application as barred by limitation.

The Respondent appealed to the NCLAT under Section 61 of the IBC. By the impugned judgment and order, the NCLAT set aside the order dated 02.01.2019 passed by the Adjudicating Authority (NCLT) rejecting the application of the Respondent under Section 9 of the IBC and remitted the case to the Adjudicating Authority for admission after notice to the parties. The NCLAT held :-

“8. In the present case, it is not in dispute that right to apply under Section 9 accrued to the Appellant on 1st December, 2016, when ‘I&B Code’ came into force. Therefore, we find that the application under Section 9 filed by the Appellant is within the period of three years from the date of right to apply accrued.”

Analysis

The provisions of the Limitation Act are applicable to proceedings under the IBC as far as may be. Section 14(2) of the Limitation Act which provides for exclusion of time in computing the period of limitation in certain circumstances, provides as follows:

“14. Exclusion of time of proceeding bona fide in court without jurisdiction.— (1) … (2) In computing the period of limitation for any application, the time during which the applicant has been prosecuting with due diligence another civil proceeding, whether in a court of first instance or of appeal or revision, against the same party for the same relief shall be excluded, where such proceeding is prosecuted in good faith in a court which, from defect of jurisdiction or other cause of a like nature, is unable to entertain it.”

Similarly, under Section 18 of the Limitation Act, an acknowledgment of present subsisting liability, made in writing in respect of any right claimed by the opposite party and signed by the party against whom the right is claimed, has the effect of commencing of a fresh period of limitation, from the date on which the acknowledgment is signed. However, the acknowledgment must be made before the period of limitation expires.

Proceedings in good faith in a forum which lacks jurisdiction or is unable to entertain for like nature may save limitation. Similarly, acknowledgment of liability may have the effect of commencing a fresh period of limitation.

The Supreme Court observed that for the purpose of limitation, the relevant date is the date on which the right to sue accrues which is the date when a default occurs.

The condition precedent for condonation of the delay in filing an application or appeal, is the existence of sufficient cause. Whether the explanation furnished for the delay would constitute “sufficient cause” or not would be dependent upon facts of each case. However, there cannot be any straitjacket formula for accepting or rejecting the explanation furnished by the Appellant/applicant for the delay in taking steps.

When an appeal is filed against an order rejecting an application on the ground of limitation, the onus is on the Appellant to make out sufficient cause for the delay in filing the application. The date of enforcement of the IBC and/or the date on which an application could have first been filed under the IBC are not relevant in computation of limitation.

“It would be absurd to hold that the CIRP could be initiated by filing an application under Section 7 or Section 9 of the IBC, within three years from the date on which an application under those provisions of the IBC could have first been made before the NCLT even though the right to sue may have accrued decades ago.”

Further, the fact that an application for initiation of CIRP, may have been filed within three years from the date of enforcement of the relevant provisions of the IBC is inconsequential. What is material is the date on which the right to sue accrues, and whether the cause of action continuous.

In the case at hand, the last acknowledgment was in 2013 and the Madras High Court neither suffered from any defect of jurisdiction to entertain the winding up application nor was unable to entertain the winding up application for any other cause of a like nature.

As the limitation for initiation of winding up proceedings in the Madras High Court stopped running on the date on which the Winding Up petition was filed, the initiation of proceedings in Madras High Court would not save limitation for initiation of proceedings for initiation of CIRP in the NCLT under Section 7 of the IBC.

[Tech Sharp Engineers Pvt Ltd v. Sanghvi Movers ltd, 2022 SCC OnLine SC 1249, decided on 19.09.2022]


*Judgment by: Justice Indira Banerjee

National Company Law Tribunal
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National Company Law Tribunal, Mumbai Bench, Mumbai- The Coram of Ashok Kumar Borah, Judicial Member, and Shyam Babu Gautam, Technical Member while allowing the company petition, ordered for initiation of Corporate Insolvency Resolution Process (CIRP). The Bench stated that,

“The Operational Creditor has successfully demonstrated and proved the debt and default in this case and has also proved that there is absolutely no reason for the Corporate Debtor to hold on to the payment of the invoices”.

In the present matter initiation of Corporate Insolvency Resolution Process (CIRP) against Prince MFG Industries Private Limited (Corporate Debtor) was sought for, alleging that the corporate debtor committed default in making payment to the operational creditor. This petition was filed by invoking the provisions of Section 9 Insolvency and Bankruptcy Code, 2016 read with Rule 6 of Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016.

The Tribunal after considering the statements, acts and the submissions was of the opinion that despite giving enough chances, the corporate debtor did not file its reply, showed that the amount was due and payable. Also the acts and the tactics used also elaborated the intention. The Tribunal considering the contradicting statements where a part payments was made and then later denying any pre-existing dispute, it was of the view that,

“This bench clearly visualizes the tactic played on the part of the Corporate Debtor to delay the proceedings”.

The Tribunal was thus of the opinion, “It is observed by this bench that the part payment made by the Corporate Debtor proves that it owes the claimed amount to the Operational Creditor and hence it is deemed to be an admission on the part of the Corporate Debtor”. And further stated, “Hence this Bench is left with no option except to admit the above Company Petition, since the above Company Petition in hand satisfies all necessary legal ingredients for admission under Section 9 of the Code”.

[Amit Sangal v. Prince MFG Industries Private Ltd., IA No. 1509/2021, decided on-05-10-2021]


Agatha Shukla, Editorial Assistant has reported this brief.


Counsel for the parties:

For the Operational Creditor:

Mr. Anuj Solanki, Practicing Company Secretary, Mr. Rajesh Agarwal, Advocate

For the Corporate Debtor :

Mr. Dinesh Dubey, Advocate

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National Company Law Appellate Tribunal (NCLAT): The Bench of Justice Bansi Lal Bhat (Acting Chairperson) and Justice Anant Bijay Sing (Judicial Member) and Kanthi Narahari (Technical Member) set aside the Adjudicating Authorities decision while establishing whether a pre-existing dispute existed between the parties.

The instant appeal was filed against the order of the National Company Law Tribunal, New Delhi wherein the application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 by the respondent was admitted.

Pre-Existing Dispute

Aggrieved by the above, suspended director of the Corporate Debtor filed the present appeal challenging the admission and initiation of Corporate Insolvency Resolution Process against the Corporate debtor for the reason that there is a pre-existing dispute between the Corporate Debtor and the Operational Creditor.

Brief facts

Corporate Debtor invited tender in carrying out electrical works and respondent/Operational Creditor was assigned the same. In terms of the agreement and Letter of Intent, the payment terms were specifically incorporated therein.

In terms of LOI, a specific mention the time of completion is the essence of the contract and milestones were accordingly incorporated. The work was to be completed within 120 days. However, the work was delayed and the same was communicated by the Operational Creditor.

Further, it was submitted that the Operational Creditor has not completed the work and the Corporate Debtor time and again reminded Operational Creditor to complete the work by pointing out the defects.

Issue for Consideration

Whether there is an existence of dispute prior to the issuance of Demand Notice dated 11-04-2019 or not?

Bench noted that various email were exchanged between the parties. Respondent addressed to the appellant whereby it had been stated that the project was delayed much beyond the original schedule leading to enhanced overheads and stated that they needed funds to source materials with respect to work progress.

Deficiency in Service

Tribunal opined that the Adjudicating Authority instead of taking technical objection that the email dated 29-04-2019 may not be a response to the demand notice issued by respondent, however, the contents raised by the appellant should have been taken into consideration for the purpose of deciding the issue to elucidate any pre-existing dispute keeping in view of the trail of exchange of e-mails regarding deficiency in service.

Letters/e-mails of respondent dated 29-12-2018:

“Dear Sir,

We are handing over Electrical Works, Documents Details at Triumph Resort 336/1A, village Calwaddo, Benaulim, Goa- 403716.”

From the perusal of correspondences between the Appellant and Respondent, Appellant/Corporate Debtor submitted that the Respondent did not complete the project in time thereby the Project got delayed thereby they suffered losses. On the other side, the stand of Respondent/Operational Creditor that they completed the project and handed over to the Appellant/Corporate Debtor, however, Appellant/Corporate Debtor failed to pay bills even after completion of the project.

Bench stated that it is unequivocal that there exists a dispute between the parties prior to the issuance of Demand Notice dated 11-04-2019.

Adjudicating Authority instead of taking a technical objection that the Appellant/Corporate Debtor did not respond to the Demand Notice issued by the Respondent/Operational Creditor within the statutory period of 10 days as contemplated under Section 8(2) of IBC, should have analysed the documents placed before it, before taking such objection.

Tribunal observed that it is bound by the Supreme Court decision in, Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353, wherein it was held that:

“…Within a period of 10 days of the receipt of such demand notice or copy of invoice, the corporate debtor must bring to the notice of the operational creditor the existence of a dispute and/or the record of the pendency of a suit or arbitration proceeding filed before the receipt of such notice or invoice in relation to such dispute [Section 8(2)(a)]. What is important is that the existence of the dispute and/or the suit or arbitration proceeding must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice, as the case may be.”
Another Supreme Court decision was referred to, Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407, wherein it was decided that the dispute must exist before the receipt of the Demand Notice or Invoices as the case may be.
In Gajendra Parihar v. Devi Industrial Engineers,  2020 SCC OnLine NCLAT 274, Bench was of the view that existence of dispute prior to the issuance of Demand Notice, the Application under Section 9 IBC is not maintainable and once there is the existence of such dispute, the Operational Creditor gets out of the clutches of the Code.

Decision

Bench held that in view of the email/letters there existed a dispute prior to the Demand Notice.

Exchange of e-mails/correspondences, as referred above, clearly establishes that there is a pre-existing dispute between the parties regarding completion of the work and the Appellant/Corporate Debtor continuously made complaints regarding non-completion of work and deficiency in services, thereby loss caused to the Appellant/Corporate Debtor.

Hence, the Adjudicating Authority ought not to have admitted the application under Section 9 of IBC filed by the respondent.

Bench reiterated that,

Code is a beneficial legislation intended to put the Corporate Debtor on its feet and it s not a mere money recovery legislation for the Creditors.

In view of the above discussion, initiation of Corporate Insolvency Resolution Process is quashed and set aside.

While remitting back the matter to Adjudicating Authority, the tribunal directed Interim Resolution Professional/ Resolution Professional will hand over the assets and records to the Corporate Debtor/Promotor/Board of Director. [Umesh Saraf v. Tech India Engineers (P) Ltd.,  2020 SCC OnLine NCLAT 677, decided on 19-10-2020]

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National Company Law Appellate Tribunal (NCLAT): A Bench of Justice S.J. Mukhopadhaya, Chairperson and Kanthi Narahari, Member (Technical), allowed an appeal seeking to quash the Corporate Insolvency Resolution Process against the Corporate Debtor.

The Operation Creditor had filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 which was admitted by the Adjudicating Authority and Corporate Insolvency Resolution Process was initiated against the Corporate Debtor.

Rajiv Shukla, Shivani Kapoor and Gorang Goyal, Advocates for the appellant submitted that the matter had been settled with the Operation Creditor. It was submitted that the Corporate Debtor had paid the entire amount shown in the Demand Notice before the Committee of Creditors was appointed.

The fact of settlement between the parties before the constitution of Committee of Creditors was accepted by Nikshubha Sethi, Advocate appearing for the Operational Creditor and Syed Sarfaraz Karim, Advocate appearing for the Interim Resolution Professional.

In view of the admitted settlement reached between the parties, the Appellate Tribunal exercised inherent powers under Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 and set aside the impugned order whereby the Corporate Insolvency Resolution Process was initiated against the Corporate Debtor. The application under Section 9 IBC filed by the Operational Creditor was dismissed as withdrawn.[Girish Agarwal v. Lavis Signature Panel (P) Ltd., 2019 SCC OnLine NCLAT 490, decided on 13-09-2019]

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National Company Law Appellate Tribunal (NCLAT): A Bench of Justice Bansi Lal Bhat, Member (Judicial) and Balvinder Singh, Member (Technical), dismissed an appeal filed by the Chairman of the Corporate Debtor challenging the order passed by the National Company Law Tribunal whereby the application filed by the Operational Creditor under Section 9 of the Insolvency and Bankruptcy Code, 2016 for initiation of the Corporate Insolvency Resolution Process against the Corporate Debtor was admitted.

The Operation Creditor initiated the insolvency process alleging that the Corporate Debtor failed to pay the dues pending under the contract entered into between parties whereby the Operational Creditor supplied broken rice and coal to the Corporate Debtor.

S.K. Sahijpal, Rakhi Sahijpal, Manisha Saini and Mihika Gupta, Advocates for the appellant-Chairman contended that there was no privity of contract between the Operational Creditor and the Corporate Debtor. It was contended that the Corporate Debtor had entered into the said supply agreement with one Arun Agarwal and Annapurna Agrawal. It was submitted that the Operation Creditor — Priya Trading Company — was not a party to the said agreement. Per contra, Sangram Patnaik representing Priya Trading Company supported the impugned order passed by NCLT.

Perusing the lawyer’s notice brought on evidence which was sent by Corporate Debtor to Arun Agrawal and Annapurna Agrawal, the Appellate Tribunal noted:

“It is therefore abundantly clear that the ‘Corporate Debtor’ was conscious of the fact that Arun Agrawal and Annapurna Agrawal supplying raw material to it were operating under the name and style of ‘Priya Trading Company’. This admission on the part of ‘Corporate Debtor’ stares at its face and there is no scope for taking a U-turn. The fact that ‘Priya Trading Company’ was the name and style under which Arun Agrawal and Annapurna Agrawal have been operating was never a fact required to be discovered or rediscovered. Both are synonyms and well within the knowledge of the ‘Corporate Debtor’ as also the ‘Appellant’. The ground raised to offset the triggering of CorporateInsolvency Resolution Process at the instance of ‘Priya Trading Company’ as ‘Operational Creditor’ by taking plea of there being no privity of contract between the ‘Operational Creditor’ and the ‘Corporate Debtor’ falls flat and has to be dismissed as being absurd and repugnant to the admitted position in regard to the status and locus standi of the ‘Operational Creditor’.”

Hence, the Appellate Tribunal held that the impugned order does not suffer from any infirmity and therefore, the instant appeal was dismissed.[Vijay Kumar v. Priya Trading Co., 2019 SCC OnLine NCLAT 585, decided on 11-09-2019]

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National Company Law Appellate Tribunal (NCLAT), New Delhi: The Bench comprising of S.J. Mukhopadhaya (Chairperson) and A.I.S Cheema, Member (Technical) and Kanthi Narahari, Member (Technical) declared an appeal filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 not maintainable in view of the pre-existing dispute.

In the present case, an appeal filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 by Respondent 1 against ‘Axiss Dental Private Limited’ (Corporate Debtor) was admitted by National Company Law Tribunal, New Delhi by the impugned order.

Counsel appearing for appellant Ruchin Middha and Iggu Chittiappa, stated that there was pre-existing dispute due to which application under Section 9 of I&B Code was not maintainable. Further, they placed reliance on Company Petition no. 96/241-242/ (PB) of 2018 preferred by Respondent 1 under Sections 241, 242 and 244 of Companies Act, 2013 alleging certain acts of ‘oppression and mis-management’.

Counsel appearing on behalf of Respondent 1 submitted that Respondent 1 is a shareholder, CEO and Director of the Company. It was stated that he was not paid salary for certain months and in spite of demand notice under Section 8(1), ‘Corporate Debtor’ defaulted to pay.

Tribunal found that the company petition under Sections 241 and 242 of Companies Act 2013 was still pending before NCLT, New Delhi.

Respondent 1 issued a demand notice under Section 8(1) of I&B Code when the above-stated application was still pending in respect to the payment of salary and the decision of NCLT was awaited in that regard.

Therefore, NCLAT on perusal of the facts as stated above found that there is a pre-existence of dispute with regard to salary payable to Respondent 1 and the decision for the same was awaited prior to issuance of ‘demand notice’ under Section 8(1) and held that the application under Section 9 of I&B Code was not maintainable.

Further, the orders passed by adjudicating authority in regard to the appointment of ‘Interim Resolution Professional’, declaring a moratorium, etc. pursuant to the impugned order of admission and action taken by ‘Resolution Professional’ were all declared illegal and set aside. ‘Corporate Debtor’ was released from all the rigour of law and allowed to function independently through its board of directors with immediate effect.

Thus, the appeal was allowed in the above terms and application under Section 9 of the I&B Code declared not maintainable in view of the pre-existing dispute. [Vivek Pasricha v. Amit Sachdeva, 2019 SCC OnLine NCLAT 467, decided on 02-09-2019]

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National Company Law Appellate Tribunal (NCLAT): Justice S.J. Mukhopadhaya, Chairperson and Justice A.I.S. Cheema, Member (Judicial) and Kanthi Narahari, Member (Technical), dismissed an application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 against “Sahara Q Shop Unique Products Range Limited”.

Gurumoorthi filed an application under Section 9 of I&B Code against “Sahara Q Shop Unique Products Range Limited” which was admitted by the impugned order dated 15-12-2017 passed by NCLT, Mumbai. Romi Datta, Shareholder of “Sahara Q Shop Unique Products Range Limited” challenged the impugned order.

Appellant was represented by Saurab Jain, Neha Gupta, Mustafa Alam, Simranjeet Singh and Siddharth Jain, Advocates. Whereas, the Respondents were represented by Advocates Divyanshu Sahay and Shradha Narayan.

Appellant’s counsel submitted that the impugned order was passed ex-parte and suffers various infirmities.

In the appellant’s view, the Supreme court of India has prohibited ‘Sahara Group of Companies’ to pay any amount to any person. Also in an ongoing contempt petition titled as ‘SEBI v. SIRECL’ and ‘SEBI v. SHICL’ respectively, ‘Sahara Group of Companies’ had sought permission to clear the unpaid salaries of employees. Order of the Supreme Court disposed of the said applications. Therefore, according to counsel for the appellant, “Sahara Q Shop Unique Products Range Limited”—(Corporate Debtor) cannot pay any amount even to Respondent 1– Operational Creditor and therefore no default can be alleged.

Further, counsel for Respondent 1 submitted that orders relied upon by the counsel for the appellant, have no implication on the ‘Corporate Debtor’ at hand because even after passing of the said orders, the ‘Corporate Debtor’ has paid salary until it voluntarily stopped paying. Besides, ‘Sahara Group Companies’ have even settled claims relating to ‘Operational Debt’ amounting to Rs 20 crores as recently as 30-04-2019.

Tribunal on hearing the submissions of the parties and on perusal of the record, found that except vague statements by the appellant, there is nothing on record to suggest that Supreme Court passed a specific order prohibiting Sahara Q Shop Unique Products Range Limited” to release or pay any amount.

Also, Tribunal found that, on order passed by Adjudicating Authority (NCLT, Mumbai), it appeared that “Sahara Hospitality Limited” has settled the claim of “Delta Electro-Mechanical Private Limited” (Operational Creditor) amounting to Rs 20 crores.

Therefore, in the above view, Tribunal denied interfering with the impugned order dated 15-12-2017 and dismissed the appeal. [Romi Dutta v. S. Gurumoorthy, 2019 SCC OnLine NCLAT 448, decided on 14-08-2019]

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National Company Law Appellate Tribunal (NCLAT): Justice Bansi Lal Bhat and Balvinder Singh, Members (Judicial) held that the application filed by the appellant under Section 9 of the Insolvency and Bankruptcy Code, 2016 was not maintainable as it was based on a foreign decree passed ex-parte and not on merits, and until the judicial proceedings regarding execution of the same pending before the Indian Courts fructify in a decree favouring the appellant, the claim of the appellant could not be held to have crystallized into a “debt payable in law”.

The appellant worked for the respondent, KEC International Ltd., in the Democratic Republic of Congo. He raised certain disputes regarding his employment and termination thereof, whereupon the Labour Court of Congo awarded a decree in favour of the appellant. However, KEC International did not comply with the same. The appellant returned to India and filed a suit before the Bombay High Court under Section 13 CPC. During the pendency of the said suit, the appellant filed an application against KEC International for initiation of corporate insolvency resolution process under Section 9 IBC. The said application was declined to be admitted by the National Company Law Tribunal, Mumbai, on the ground that there was a dispute as to the existence of an operational debt, since the foreign decree which was the basis of the appellant’s claim was a matter of pending adjudication before the Bombay High Court. Aggrieved by the said order, the appellant approached the Appellate Tribunal.

The appellant was represented before the Appellate Tribunal by K.S. IIangovan and P. Jegan, Advocates. Per contra, K. Datta, Shakunt Sumitra and Pallavi Srivastava represented KEC International.

The issue requiring determination was whether, in absence of adjudication of the foreign decree passed by a court in a non-reciprocating territory, which was relied upon by the appellant, he was legally justified in seeking initiation of corporate insolvency resolution process under Section 9 IBC against KEC International.

The Appellate Tribunal noted that in Congo, the suit was decreed in appellant’s favour in ex-parte, on account of non-appearance of KEC International. It was not disputed that such ex-parte decree of a foreign court would not be executable in India until adjudicated upon by a Civil Court in India within the ambit of Section 13 CPC and having regard for the same, the appellant chose to file suit before Bombay High Court, which was still sub-judice. Upon the decretal amount was adjudicated upon by the High Court as a legally payable claim, the same would not constitute a “Debt” in the hands of the appellant and unless the debt was crystallised as payable in law, the issue of default would not be attracted.

The Appellate Tribunal was of the opinion: “the adjudication initiated by the appellant before Bombay High Court wherein adjudication is sought in regard to foreign decree obtained ex-parte falls within the purview of a pre-existing dispute placing an embargo on the powers of Adjudicating Authority to initiate corporate insolvency resolution process at the instance of a corporate debtor. This is apart from the fact that until such adjudication fructify in a decree favouring the appellant, the claim of the appellant cannot be held to have crystallized into a debt payable in law.”

Thus, finding no scope to interfere with the order of the NCLT, the appeal was dismissed for being devoid of merits. [Peter Jhonson John v. KEC International Ltd., 2019 SCC OnLine NCLAT 375, decided on 03-07-2019]