2019 (9) TMI 1410 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - time limitation - HELD THAT - The Appellant Operational Creditor issued Legal Notice u/s 271 of Companies Act, 2013 within the period of limitation on 20th May, 2015 to the Corporate Debtor to pay outstanding amount of ₹ 58,28,478/- along with 18% interest with clear understanding that if payment is not made winding up proceedings will be filed against Corporate Debtor . The Corporate Debtor replied to the Legal Notice on 26th August, 2015 denying the liability wherein after the Demand Notice u/s 8(1) issued by Operational Creditor on 25th October, 2017 - the claim of the Respondent Financial Creditor was not barred by limitation. The claim even if disputed, if default is more than ₹ 1 lakh, the Appellant will initiate the proceedings against the Corporate Debtor . Submission is made on behalf of the Appellant that the amount disputed by the Corporate Debtor amounts to existence of dispute but such submission cannot be accepted - It does not come within the meaning of existence of dispute. Dispute raised regarding quantum of amount in the absence of any suit or arbitration or other evidence, it cannot be said to be pre-existing dispute. Appeal dismissed - decided against appellant.

Summary

Issues:
1. Whether the claim is barred by limitation?
2. Whether the total amount has been paid to the Operational Creditor?
3. Interpretation of legal provisions under the Insolvency and Bankruptcy Code, 2016.

Analysis:

Issue 1: Whether the claim is barred by limitation?
The case involved an application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 against a Corporate Debtor by an Operational Creditor. The Adjudicating Authority admitted the application, leading to an appeal by the shareholder. The Appellant contended that the claim was barred by limitation, but the facts revealed that the Operational Creditor had raised invoices and transferred amounts to a sister concern of the Corporate Debtor. The Operational Creditor claimed outstanding dues, including interest, which were still payable. Despite a Demand Notice and Legal Notice issued within the limitation period, the Corporate Debtor denied liability. The Tribunal found that the claim was not barred by limitation based on the facts presented.

Issue 2: Whether the total amount has been paid to the Operational Creditor?
The Appellant argued that the total amount had been paid to the Operational Creditor, but the Corporate Debtor's defense of the amount being barred by limitation was considered. The Tribunal noted that the dispute raised by the Corporate Debtor regarding the quantum of the amount did not constitute a pre-existing dispute as required under the Code. The Tribunal emphasized that even if the claim was disputed, the initiation of proceedings against the Corporate Debtor could proceed if the default amount exceeded the specified threshold. Ultimately, the Tribunal rejected the Appellant's arguments and dismissed the appeal.

Issue 3: Interpretation of legal provisions under the Insolvency and Bankruptcy Code, 2016
The Tribunal referred to a Supreme Court decision regarding the application of Sections 7 and 9 of the Code, emphasizing the broad definition of default and debt under the Code. The distinction between financial creditors and operational creditors was highlighted, along with the procedures for initiating insolvency resolution processes. The Tribunal clarified that a dispute regarding the quantum of the amount, in the absence of specific legal actions or evidence, did not constitute a valid pre-existing dispute under the Code. The Tribunal's decision to dismiss the appeal was based on the understanding that the disputed amount did not meet the criteria for a pre-existing dispute, allowing the proceedings against the Corporate Debtor to continue.

In conclusion, the Tribunal's detailed analysis of the issues involved in the judgment highlighted the application of legal provisions under the Insolvency and Bankruptcy Code, the consideration of limitation periods, and the interpretation of disputes within the context of insolvency proceedings.