2021 (12) TMI 681 - AT - Insolvency and Bankruptcy

Initiation of CIRP - NCLT admitted the application - Operational creditors - The pivotal plea taken on behalf of the Appellant is that the obligation of the Corporate Debtor was to perform the export of goods and the liability arises when the Contract was terminated on 30.04.2020 and when the Corporate Debtor was directed to return the money. As such, the 1st Respondent cannot bring a default early to the date of 30.04.2020. - HELD THAT - As seen from the I B Code, 2016 an Adjudicating Authority does not decide a suit/money claim and the CIRP is not determined by the Court . In the initial stage, an Adjudicating Authority is required to take appropriate steps for Resolution of the Corporate Debtor under Insolvency . No wonder, Resolution Process is not a Litigation by any stretch of imagination. In the instant case, the application under Section 9 of the I B Code (IBA/35/KOB/2020) was filed on 16.09.2020. The Section 8 Demand Notice to the Corporate Debtor was sent by WhatsApp and email on 01.08.2020 and further that the said Notice, by way of caution was sent through speed post on 04.08.2020 which was received by the Corporate Debtor on 10.08.2020, as averred by the 1st Respondent/Operational Creditor in Part IV of its application at Sl.No.8 - Corporate Debtor before the Adjudicating Authority had taken a stand that there was no Contract or agreement between the parties in regard to the award of Interest at 18%, as claimed by the Operational Creditor and that the object of I B Code, 2016 is not a recovery of money and the frustration of contract, reasons for failure of export, inspection of goods on account of Covid lock down require detail rumination in fixing the liabilities of the Corporate Debtor. In short, according to the Corporate Debtor , there exists a Dispute and the determination of Default require and elaborate examination of facts and letting in of evidence to be adduced by the respective parties. In regard to the facts of the present case on hand are even though the Date of Default was on 03.01.2020, the application under Section 9 of I B Code was filed by the Operational Creditor/Applicant before the Adjudicating Authority on 16.09.2020 wherein the Operational Creditor had claimed a total amount of debt USD 1,13,500 payable by the Corporate Debtor to it including interest at 18% per annum amounting to USD 13,500 as on 31.08.2020, in view of the fact that the contract was terminated on 30.04.2020, there being a dispute in regard to the contract for delivery of goods (in respect of supply of cashew kernels) between the parties, the threshold limit under Section 10A of the Code for initiation of CIRP is ₹ 1 Crore (vide Notification to Section 4 of the Code dated 24.03.2020, in the instant case, the Default claimed from Corporate Debtor is USD 1,00,000 and interest @ 18% per annum amounting to USD 13,500 and the interest being denied by the Corporate Debtor there being no contract for paying the interest between the parties) and this Tribunal taking note of the fact that under the Contract the amount was due and payable on 25.04.2020, comes to a consequent conclusion that as per provision of Section 10A, the application filed by the Operational Creditor /petitioner under Section 9 of the Code is not maintainable. The Adjudicating Authority will now close the proceedings and is required to fix the Fee of the Interim Resolution Professional and that the Corporate Debtor is required to pay the Fees for the period the Interim Resolution Professional had discharged his duties. Appeal allowed.

Summary

Issues Involved:
1. Applicability of the notification dated 24.03.2020 under Section 4 of the Insolvency and Bankruptcy Code (IBC), 2016.
2. Applicability of Section 10A of the IBC to the application filed under Section 9.
3. Determination of the date of default.
4. Existence of a pre-existing dispute.
5. Jurisdictional threshold for filing the application under the IBC.
6. Definition and scope of ‘Operational Debt’ and ‘Operational Creditor’.

Issue-wise Detailed Analysis:

1. Applicability of the Notification dated 24.03.2020 under Section 4 of the IBC:
The notification dated 24.03.2020 specified one crore rupees as the minimum amount of default for the purposes of Section 4 of the IBC. The Tribunal concluded that the notification is prospective in nature and does not apply retrospectively. The substantive rights of individuals are to be decided by the law that existed when the action was initiated. The notification does not save the applicant from the initiation of insolvency, especially in cases where defaults towards creditors have taken place before the pandemic.

2. Applicability of Section 10A of the IBC:
Section 10A, inserted by an Ordinance on 5th June 2020, suspends the initiation of corporate insolvency resolution process (CIRP) for defaults arising on or after 25th March 2020 for a period of six months or such further period, not exceeding one year. The Tribunal observed that the default in this case occurred on 03.01.2020, which is before the cut-off date of 25.03.2020, making the application maintainable. The Tribunal referred to the Supreme Court decision in Ramesh Kymal v. Siemens Gamesa Renewable Power Pvt Ltd to clarify that Section 10A does not apply to defaults committed before 25th March 2020.

3. Determination of the Date of Default:
The Tribunal found that the date of default was 03.01.2020 when the ‘Corporate Debtor’ failed to fulfill the obligation of shipping the goods. The Tribunal rejected the contention that the date of default was 30.04.2020, the date when the ‘Corporate Debtor’ was directed to return the money.

4. Existence of a Pre-existing Dispute:
The Tribunal found no pre-existing dispute between the parties. The ‘Corporate Debtor’ failed to bring to the notice of the Operational Creditor the existence of any pre-existing dispute within 10 days of the receipt of the Demand Notice as stipulated in Section 8(2) of the IBC. The dispute attempted to be raised through the reply does not fall under the definition of 'dispute' as provided under Section 5(6) of the IBC.

5. Jurisdictional Threshold for Filing the Application under the IBC:
The Tribunal held that the jurisdictional threshold for filing an application under the IBC was ?1 crore as per the notification dated 24.03.2020. The application filed by the Operational Creditor on 16.09.2020 does not meet this threshold, as the total amount of debt claimed was less than ?1 crore.

6. Definition and Scope of ‘Operational Debt’ and ‘Operational Creditor’:
The Tribunal referred to the definition of ‘Operational Debt’ under Section 5(21) and ‘Operational Creditor’ under Section 5(20) of the IBC. It concluded that the amount paid as advance towards the purchase of goods does not fall within the term ‘Operational Debt’ for the purpose of the IBC, as there was no delivery of goods or provision of services.

Conclusion:
The application filed by the Operational Creditor under Section 9 of the IBC was dismissed for not meeting the jurisdictional threshold of ?1 crore and for being barred by Section 10A. The Tribunal set aside the order of the Adjudicating Authority admitting the application and initiating CIRP. The Corporate Debtor was released from all the rigours of law and allowed to function independently. The dismissal of the application does not preclude the Operational Creditor from seeking appropriate remedy before a competent forum.