2017 (3) TMI 1867 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - Time Limitation - HELD THAT - In order to ascertain as to whether there is a default in making payment of the operational debt, the tribunal is required to examine that the claim made before it s within time. In case of revenue recovery the limitation period is three years from the date on which the debt has fallen due or the claim has arisen. Law of limitation has to be applied with all its rigour and tribunal has no power to extend the period of limitation. A live claim after lapse of limitation period becomes a stale claim unenforceable in law. Accordingly it is to be seen whether the tribunal has been moved within the maximum period of three years prescribed under the indian Limitation Act, 1963 from the date on which the debt has fallen due or the claim has arisen. Admittedly the present claim arises in respect of supplies made by the petitioner to the respondent company during the year 2011-12 through various sales invoices all dated 30th March, 2011. Almost long six years have since passed. There is also no dispute that last part payment against the said supplies was made by respondent company on 29.08.2012 and there after it has stopped making any payment to the petitioner. The present application has been filed on 15.02.2017 much after the limitation period of three years. Debt has been defined in the Insolvency and Bankruptcy Code, 2016 as a liability or obligation in respect of a claim which is due and includes a financial debt and operational debt. Default has been defined in the Code as non-payment of debt which has become due and payable. (Emphasis given) A debt which is not recoverable for any valid reason ceases to be an amount due and payable. Default arises for non-payment of an amount which could be recovered in law. Default is the event on the occurrence of which, the insolvency proceedings may be initiated under the Code - Claims which are time barred are not amount due and under law. Creditors have no right to recover claims of such due that become time barred. The debt in question has become more than three years old and was, therefore, not enforceable from respondent company in view of the law of limitation. Consequently in the present case, there has been no default for initiation of insolvency proceedings. In the absence of default, the application filed by M/s Prowess International Private limited to initiate corporate insolvency resolution process under Section 9 of the Insolvency and Bankruptcy Code, 2016 against M/s Action Ispat and Power Private Limited, is rejected.

Summary

Issues:
Default in payment of operational debt; Application for corporate insolvency resolution process under Section 9 of the Insolvency and Bankruptcy Code, 2016; Claim of operational creditor against corporate debtor; Limitation period for filing the claim.

Analysis:
The application was filed by an operational creditor, M/s Prowess International Private Limited, against the corporate debtor, M/s Action Ispat and Power Private Limited, under Section 9 of the Insolvency and Bankruptcy Code, 2016, citing default in payment. The operational creditor claimed that the corporate debtor owed them a significant sum for supplies made, and despite repeated demands and notices, the outstanding dues were not cleared. The operational creditor highlighted that the debt was acknowledged in the respondent company's financial statements for multiple fiscal years, indicating that the amount was not written off.

The Tribunal examined the issue of the limitation period for filing the claim. The claim arose from supplies made in 2011-12, with the last payment received in 2012. The application, however, was filed in 2017, well beyond the three-year limitation period. The operational creditor argued that continuous transactions and follow-up actions prevented the claim from being time-barred. However, the Tribunal held that the transactions were not continuous as there were no subsequent invoices after 2011. The Tribunal emphasized that mere follow-up actions do not extend the limitation period, citing legal precedents.

Regarding the acknowledgment of debt in the financial statements, the Tribunal noted that while the operational creditor provided financial statements of the respondent company for multiple years, there was no specific mention or reflection of the outstanding dues owed to the petitioner. Without concrete evidence of acknowledgment, the Tribunal deemed the claim time-barred. The Tribunal emphasized that the burden of proof lies on the claimant to establish the acknowledgment of debt, which was not satisfactorily done in this case.

Ultimately, the Tribunal concluded that the claim was time-barred due to the expiration of the limitation period, making it unenforceable in law. As the debt had become more than three years old and was not recoverable due to the law of limitation, the Tribunal rejected the application for corporate insolvency resolution process against the respondent company, M/s Action Ispat and Power Private Limited, without any costs imposed.