2020 (10) TMI 547 - AT - Insolvency and Bankruptcy

Enhancement of minimum amount of default limit from one lakh to 1 crore for initiating CIRP as against small and medium scale industries - whether notification is under section 4 of the Code raising the minimum default limit be applicable to the applications pending for admission? - initiation of CIRP - HELD THAT - In the instant case on hand, it is crystalline clear that the Corporate Debtor had accepted and agreed to make payment of the outstanding debt, as rightly observed by the Adjudicating Authority in the impugned order. In short, no iota of any dispute / controversy was raised by the Corporate Debtor . The 2nd Respondent / Operational Creditor issued a Demand Notice to the Corporate Debtor owing to the failure in effecting payment of the outstanding debt. In reality, the Demand Notice was served on the Corporate Debtor on 01.08.2019, which is not disputed. For the Demand Notice in issue, the Corporate Debtor had not given any reply to the 2nd Respondent / Operational Creditor. Although, adequate opportunities were provided to the Corporate Debtor by the Adjudicating Authority no endeavor was made to make payment in respect of the outstanding debt. On a careful consideration of respective contentions advanced on either side and considering the facts and circumstances of the instant case in a conspectus fashion holds unhesitatingly that the notification dated 24.03.2020 of the Ministry of Corporate Affairs, Government of India, is prospective in nature and it is not retrospective or retroactive in nature. Further, the said notification will not apply to the pending applications filed before the concerned Adjudicating Authority (Authorities), under IBC (waiting for admission), prior to the issuance of the aforesaid notification, as opined by this Tribunal - the conclusion arrived at by the Adjudicating Authority in the impugned order to the effect that the notification dated 24.03.2020 of the Ministry of Corporate Affairs, Government of India, shall be considered as prospective and not retrospective and the finding that there was no payment on the side of Corporate Debtor after receipt of Demand Notice, no pre-existing dispute also alleged or proved and ultimately admitting the application filed by the 2nd Respondent / Operational Creditor are free from legal infirmities. Appeal dismissed.

Summary

Issues Involved:
1. Whether the notification dated 24.03.2020 enhancing the minimum default limit to ?1 crore is retrospective or prospective.
2. Whether the application under Section 9 of the IBC is maintainable given the amendment to Section 4.
3. Whether the procedural requirements under Section 9 of the IBC were met by the Operational Creditor.
4. Whether the Corporate Debtor had any pre-existing dispute or made any payment after receiving the demand notice.
5. Whether the Adjudicating Authority erred in admitting the application for CIRP.

Issue-wise Detailed Analysis:

1. Retrospective or Prospective Nature of Notification:
The notification dated 24.03.2020 by the Ministry of Corporate Affairs specifies ?1 crore as the minimum amount of default for initiating CIRP. The Tribunal concluded that the notification is prospective in nature and not retrospective because it does not explicitly state its retrospective application. The Tribunal emphasized that applying the notification retrospectively would create absurd results and wider complications.

2. Maintainability of Application under Section 9:
The Appellant contended that the application was not maintainable as the claim amount was below the threshold of ?1 crore as per the amended Section 4. The Tribunal rejected this argument, stating that the amendment to Section 4 is prospective and does not affect applications filed before the notification date. The Tribunal held that the right to file an application under Section 9 is a substantive right and cannot be retrospectively affected by procedural changes.

3. Procedural Requirements under Section 9:
The Tribunal noted that the Operational Creditor had fulfilled all procedural requirements under Section 9 of the IBC, including serving a demand notice, producing a statement of bank account, and an affidavit. The Operational Creditor also proposed the name of the Resolution Professional, and there were no disciplinary proceedings against the proposed IRP.

4. Pre-existing Dispute or Payment by Corporate Debtor:
The Tribunal observed that the Corporate Debtor did not dispute the debt and had acknowledged the outstanding amount. Despite receiving the demand notice, the Corporate Debtor neither replied nor made any payment towards the outstanding debt. The Tribunal found no pre-existing dispute or any payment made after the demand notice, supporting the Operational Creditor's claim.

5. Adjudicating Authority's Decision:
The Tribunal upheld the Adjudicating Authority's decision to admit the application for CIRP. The Tribunal found that the Adjudicating Authority had correctly observed that there was no payment by the Corporate Debtor after receiving the demand notice and no pre-existing dispute was raised. The Tribunal concluded that the Adjudicating Authority's order was free from legal infirmities.

Conclusion:
The Tribunal dismissed the appeal, holding that the notification dated 24.03.2020 is prospective and does not apply to pending applications. The application under Section 9 was maintainable, and the procedural requirements were met by the Operational Creditor. The Corporate Debtor had no valid defense, and the Adjudicating Authority rightly admitted the application for CIRP. The appeal was dismissed with no costs, and all pending interlocutory applications were closed.