2020 (12) TMI 192 - Tri - Insolvency and Bankruptcy

Maintainability of Application for initiation of CIRP - mandatory period of 10 days to object to the notice or repay the alleged debt had not elapsed - Section 9 of the Companies Act, 2013 - HELD THAT - It is seen that the Notification dated 24.03.2020 does not save the Applicant/ Corporate Debtor from the initiation of insolvency especially in cases where defaults towards creditors have taken place before the pandemic and the resultant financial crisis. Such an interpretation would be contrary to the intention of the executive in exercise of its power of delegated legislation. Thus, if the intention was to provide for a blanket protection to Corporate Debtors from being dragged to the NCLT irrespective of when or what extent a default has taken place, it would necessarily require a legislative amendment, and that a mere issuance of the notification would not suffice. In the instant application filed under Section 9 of IBC, the debt has become due on 06.07.2019. That on 25.02.2020, the Demand Notice in Form 3 under Rule 5 of the Insolvency and Bankruptcy Code, 2016 demanding payment of ₹ 31,33,595/- was sent to the Corporate Debtor at its Registered Office through speed post. However, no reply raising any dispute has been received by the Respondent/Operational Creditor within the stipulated period of ten days from 25.02.2020. It is therefore, evident that despite the expiry of 10 days from the date of service of the demand notice, neither dispute nor repayment of the due amount has been brought to the notice of the Operational Creditor. This would clearly show that Applicant/Corporate Debtor is not able to pay its debts taken in the normal course of business. Since, the Demand Notice in Form 3 has been sent by the Operational Creditor to the Corporate Debtor and after waiting for 10 days form that date only, Operational Creditor filed the application, the contention of the Applicant/ Corporate Debtor has no legs to stand. Application challenging the maintainability of the Application is dismissed.

Issues Involved:
1. Maintainability of the application under Section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Applicability of the notification dated 24.03.2020 enhancing the minimum amount of default to ?1 crore.
3. Compliance with the mandatory 10-day notice period under Section 8 of the Insolvency and Bankruptcy Code, 2016.
4. Impact of the COVID-19 pandemic on the insolvency proceedings.

Issue-wise Analysis:

1. Maintainability of the Application under Section 9 of the Insolvency and Bankruptcy Code, 2016:

The Corporate Debtor argued that the application under Section 9 was not maintainable as it was filed prematurely before the expiration of the mandatory 10-day notice period stipulated under Section 8 of the Insolvency and Bankruptcy Code, 2016. The Corporate Debtor received the Form 3 Demand Notice on 02.03.2020, and the application was filed on 07.03.2020, which was within the 10-day period. The Tribunal emphasized that the 10-day period is mandatory and not optional, and any application filed before the expiration of this period is not maintainable. However, the Tribunal noted that the application was actually filed on 25.09.2020, well beyond the mandatory period, thus making the application maintainable.

2. Applicability of the Notification dated 24.03.2020 Enhancing the Minimum Amount of Default to ?1 Crore:

The Corporate Debtor contended that the application was not maintainable as the minimum amount of default required to file an application under the Insolvency and Bankruptcy Code was enhanced to ?1 crore by the notification dated 24.03.2020. The Tribunal referred to the judgment of the Hon’ble NCLAT in Madhusudhan Tantia vs. Amit Choraria, which held that the notification is prospective in nature and does not apply to defaults that occurred before the notification date. The Tribunal concluded that since the debt became due on 06.07.2019, prior to the notification, the application is not affected by the enhanced threshold and is maintainable.

3. Compliance with the Mandatory 10-Day Notice Period under Section 8 of the Insolvency and Bankruptcy Code, 2016:

The Corporate Debtor argued that the application was filed prematurely before the expiration of the 10-day notice period. The Tribunal noted that the Demand Notice in Form 3 was sent on 25.02.2020, and the application was filed on 25.09.2020, well beyond the 10-day period. The Tribunal emphasized that the mandatory notice period was observed, and the application was filed after the expiration of the 10-day period, making it compliant with the provisions of the Insolvency and Bankruptcy Code.

4. Impact of the COVID-19 Pandemic on the Insolvency Proceedings:

The Respondent/Operational Creditor argued that the notification dated 24.03.2020 was intended to provide relief to Corporate Debtors from the impact of the COVID-19 pandemic and should not affect defaults that occurred prior to the notification date. The Tribunal referred to the Ordinance 9/2020 dated 05.06.2020, which suspended Sections 7, 9, and 10 of the Insolvency and Bankruptcy Code for defaults arising on or after 25.03.2020. The Tribunal concluded that the notification and the Ordinance were intended to prevent large-scale insolvencies due to the pandemic and did not apply retrospectively to defaults that occurred before the notification date.

Conclusion:

The Tribunal dismissed the application challenging the maintainability of the insolvency application, holding that the application was filed after complying with the mandatory 10-day notice period and was not affected by the notification enhancing the minimum amount of default to ?1 crore. The Tribunal emphasized that the notification is prospective in nature and does not apply to defaults that occurred before the notification date. The application under Section 9 of the Insolvency and Bankruptcy Code was found to be maintainable, and the Corporate Debtor's challenge was dismissed.

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