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2021 (4) TMI 309 - AT - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Appeal against the admission of application - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - time limitation - pre-existing dispute or not - Operational Debt or not - HELD THAT - As per the General Agency Agreement between the Operational Creditor and the Corporate Debtor, the Corporate Debtor acted as an agent of the former in India and collected various payments due to the Operational Creditor's customers remitted the same to the Operational Creditor. The Operational Creditor has annexed various invoices and debit notes with the Petition as evidence of the claim amount. Since the Corporate Debtor was an agent and service provider of the Operational Creditor, the amounts due under the transactions would fall within the ambit of Operational Debt as defined under Section 5 (21) of the Insolvency and Bankruptcy Code 2016. Time Limitation - HELD THAT - Section 7 of the I B Code comes into play on non-payment of debt when whole or any part or instalment of the amount of Debt has become due and payable and is not paid by the Corporate Debtor. When the Corporate Debtor acknowledges the liability before the expiration of three years, from that point fresh period of Limitation u/s 18 of the Limitation Act starts. But such acknowledgement must be before the expiration of the prescribed period of Limitation, including the fresh period of Limitation due to acknowledgement of the Debt, from time to time for the institution of proceeding under Section 7 of the Code. The limitation period started after the General Agency Agreement's termination, when demand was raised, and the default was committed by the Corporate Debtor. Therefore, the limitation period is regularly getting extended by implication of Section 18 of the Limitation Act. Thus it is clear that the Debt is not barred by Limitation. Pre-existing dispute or not - HELD THAT - It is a settled position of law that once the Debt and default in question are proved, and the Corporate Debtor raised no prior dispute, it is mandatory for the Adjudicating Authority in an Application filed under Section 9 of the Code, admit the Petition for Initiation of CIRP. We believe that the Appellant's objection regarding the pre-existing dispute is not sustainable in the above circumstances - the Corporate Debtor owes a debt of more than Rupees One Lac, i.e. above the threshold limit, and it committed default in discharging the same. It also appears that there was no pre-existing dispute. The Corporate Debtor's main contention is that the amounts paid by the Operational Creditor and its financial statements do not match. It is not for the Adjudicating Authority to ascertain, investigate, or fix the exact amount of liability at the admission stage. After the admission of the petition, it is the duty of the Resolution Professional to collate the claims and ascertain the liability. Appeal dismissed.
Issues Involved:
1. Whether the alleged Debt is an Operational Debt? 2. Whether the alleged Debt is barred by Limitation? 3. Whether the Petition filed under Section 9 of the Code is not maintainable on the ground of pre-existing dispute? Issue-wise Detailed Analysis: A. Whether the alleged Debt is an Operational Debt? 1. The Appellant questioned the maintainability of the Petition under Section 9 of the I&B Code 2016, arguing that the alleged Debt is not an Operational Debt. The Tribunal noted that the legal plea can be raised at any stage of proceedings. 2. The Debt arose from the dealings between Respondent-1 and Respondent-2 under the General Agency Agreement. The Operational Creditor’s claim had no consideration for the time value of money but was for services provided or expected to be provided by the Corporate Debtor to the Operational Creditor. 3. The Tribunal referred to the Supreme Court judgment in Pioneer Urban Land and Infrastructure Ltd. v. Union of India, which clarified that in operational debts, there is no consideration for the time value of money; the consideration is the goods or services availed from the Operational Creditor. 4. The Tribunal concluded that the amounts advanced by R-1 to the Corporate Debtor were advance payments for future services, thus qualifying as Operational Debt under the Code. The amounts were treated as advance payments in the Corporate Debtor’s audited accounts and objections filed before the NCLT. B. Whether the alleged Debt is barred by Limitation? 1. The Appellant contended that Respondent No. 1’s claims are time-barred, arguing that the issuance of the notice dated 12 June 2019 was too late. 2. Respondent No. 1 claimed a sum of USD 12,23,937 towards freight from 2004 to 2016, which the Appellant argued was time-barred. 3. The Corporate Debtor admitted parts of the Debt in its reply dated 1 July 2019, acknowledging amounts under parts B and C of the demand notice. 4. The Tribunal noted that the Debt was acknowledged in the Corporate Debtor’s balance sheets and through yearly communications, extending the Limitation period under Section 18 of the Limitation Act. 5. The Tribunal referenced the Supreme Court’s decision in Laxmi Pat Surana v. Union Bank of India, which clarified that Section 18 of the Limitation Act applies to proceedings under the Code, allowing for the extension of the Limitation period through acknowledgements. 6. The Tribunal concluded that the Debt was not barred by Limitation due to the continuous acknowledgements in the Corporate Debtor’s records and communications. C. Whether the Petition filed under Section 9 of the Code is not maintainable on the ground of pre-existing dispute? 1. The Appellant argued that the Petition was not maintainable due to a pre-existing dispute. However, the Operational Creditor contended that no notice of dispute was issued until the demand notice dated 12 June 2019. 2. The Tribunal noted that the Corporate Debtor did not raise any dispute about falsification or fabrication of invoices prior to the demand notice. The Corporate Debtor’s reply dated 1 July 2019 admitted liability to repay certain amounts. 3. The Tribunal emphasized that any investigation into issues of fabrication or conflict of interest is outside the scope of summary proceedings under Section 9 of the Code. 4. The Tribunal found that there was no pre-existing dispute and that the Corporate Debtor admitted liability in its reply to the demand notice. 5. The Tribunal concluded that the Petition under Section 9 of the Code was maintainable, as the Debt and default were proved, and there was no pre-existing dispute. Conclusion: The Tribunal found that the Corporate Debtor owed a debt exceeding the threshold limit and had defaulted in discharging the same. There was no pre-existing dispute, and the Debt was not barred by Limitation. The Tribunal dismissed the Appeal, upholding the Adjudicating Authority’s decision to admit the Petition for Initiation of Corporate Insolvency Resolution Process (CIRP). The Appeal was dismissed with no order as to costs.
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