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2022 (9) TMI 954 - AT - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - appeal dismissed on the ground that it is below the threshold limit of Rupees One Crore - HELD THAT - A default by the Corporate Debtor entitled a financial creditor and operational creditor to initiate Corporate Insolvency Resolution Process. The default is thus condition precedent for initiating CIRP. The minimum amount of default as has been prescribed under Section 4 of the Code has a purpose and object. The object is that unless there is a minimum amount of default, no person should be permitted to initiate CIRP. When the amount of default was amended from Rupees One Lakh to Rupees One Crore, the object was that no application for initiation of CIRP be filed unless the threshold is fulfilled - The initiation date is thus the date on which financial creditor, corporate applicant or operational creditor makes an application to the Adjudicating Authority. Part II of the Code is applicable only when minimum amount of default of Rupees One Crore is fulfilled after 24.03.2020. Thus, right to initiate the CIRP after 24.03.2020 is only on the condition that minimum default is of Rupees One Crore. There is no right to initiate CIRP after 24.03.2020 when minimum default is not Rupees One Crore. Section 10A was inserted in the Code to give protection to the Corporate Debtor from initiation of CIRP process with regard to default committed by the Corporate Debtor after 25.03.2020. The object and purpose of insertion of Section 10A was clearly to save the Corporate Debtor on account of ill-consequences which ensued after spread of COVID-19. 25.03.2020 is the date when lockdown was imposed in the entire country - Section 10A was inserted to give protection to the Corporate Debtor to save from initiation of any CIRP against them since the default committed by the Corporate Debtor was mostly due to ill-consequences of COVID-19. The explanation clearly indicates that the provisions of this section shall not apply to any default committed under the sections 7, 9 or 10 after 25th March, 2020. The idea was to give protection to the Corporate Debtor from default which was committed from 25.03.2020 for period of one year thereafter. It was unable to see how explanation to Section 10A comes to any aid in Appellant s case. Section 10A was introduced for entirely different object and purpose and could not be read to give any support to the submissions which have been made by the Appellant in the present case. When Section 4 is applied to initiation of CIRP process, threshold should not be looked into when a right to sue accrues rather threshold be looked into on the date of initiation. Default by Corporate Debtor is a condition precedent which gives right to the Operational Creditor to file application under Section 9 but for initiating CIRP process threshold, as prescribed under Section 4, is to be fulfilled by the Operational Creditor on the date of initiation of CIRP process. Thus, no error has been committed by the Adjudicating Authority in rejecting Section 9 application filed by the Appellant on 18.01.2021 which did not fulfil the threshold of Rupees One Crore - there are no merits in the appeal - appeal dismissed.
Issues Involved:
1. Maintainability of the application under Section 9 of the Insolvency and Bankruptcy Code (I&B Code) based on the threshold limit of Rupees One Crore. 2. Applicability of the threshold limit amendment introduced by the Notification dated 24.03.2020. 3. Interpretation of the date of default and its relevance to the threshold limit. 4. The impact of Section 10A on the application. Detailed Analysis: 1. Maintainability of the Application under Section 9: The appellant, an Operational Creditor, challenged the order dated 10.06.2021 by the National Company Law Tribunal (NCLT), Kolkata, which dismissed the application under Section 9 of the I&B Code for claiming an amount of Rs.41,10,166/-. The dismissal was based on the ground that the claimed amount was below the threshold limit of Rupees One Crore, as stipulated by the Notification dated 24.03.2020. The appellant argued that the default occurred before the notification date, and hence the application should be maintainable. 2. Applicability of the Threshold Limit Amendment: The core issue was whether the amendment to Section 4 of the I&B Code, which raised the threshold limit from Rupees One Lakh to Rupees One Crore, applied to defaults that occurred before the notification date but where the application was filed after. The appellant contended that the default date should be the determining factor, not the application date. The respondent argued that any application filed after 24.03.2020 must meet the new threshold limit of Rupees One Crore. 3. Interpretation of the Date of Default and its Relevance: The tribunal examined the scheme of the I&B Code, particularly Sections 4, 6, 7, 8, 9, and 10, which collectively govern the initiation of the Corporate Insolvency Resolution Process (CIRP). It was determined that the relevant date for applying the threshold limit is the date of filing the application, not the date of default. The tribunal emphasized that the legislative intent behind the amendment was to ensure that no application for CIRP could be initiated unless the default amount met the new threshold limit of Rupees One Crore, effective from 24.03.2020. 4. The Impact of Section 10A on the Application: The appellant also argued that Section 10A, which provides protection to corporate debtors from CIRP initiation for defaults occurring after 25.03.2020 due to COVID-19, should be harmoniously construed with Section 4. However, the tribunal clarified that Section 10A was introduced for an entirely different purpose'to protect corporate debtors from the adverse effects of the pandemic'and does not affect the threshold limit amendment under Section 4. Conclusion: The tribunal concluded that the application filed by the appellant on 18.01.2021 was not maintainable as it did not meet the threshold limit of Rupees One Crore. The relevant date for determining the applicability of the threshold limit is the date of filing the application, not the date of default or the date of issuing the demand notice. The tribunal dismissed the appeal, affirming that no error was committed by the Adjudicating Authority in rejecting the application under Section 9 of the I&B Code due to non-fulfillment of the threshold limit.
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