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2024 (11) TMI 1412 - AT - IBC


The judgment from the National Company Law Appellate Tribunal (NCLAT), New Delhi, involves an appeal against a decision by the Adjudicating Authority regarding a Section 9 application under the Insolvency and Bankruptcy Code, 2016. The core issues revolve around the exclusion of certain invoices under Section 10A, the existence of a running account, and the applicability of interest under the MSME Act.

1. Issues Presented and Considered

The judgment considers the following core legal questions:

  • Whether invoices falling under the Section 10A period should be excluded from the claim amount.
  • Whether the existence of a running account and acknowledgment of debt by the Corporate Debtor affects the claim amount.
  • Whether statutory interest under the MSME Act can be added to the claim amount to meet the threshold limit.
  • Whether there was an agreement between the parties regarding the payment of interest.

2. Issue-Wise Detailed Analysis


Issue 1: Exclusion of Invoices under Section 10A

Legal Framework and Precedents: Section 10A of the Insolvency and Bankruptcy Code, 2016, bars the initiation of insolvency proceedings for defaults occurring during a specified period.

Court's Interpretation and Reasoning: The court held that invoices within the Section 10A period must be excluded, as the statutory scheme aims to prevent recovery of amounts for defaults during this period.

Key Evidence and Findings: The Adjudicating Authority identified 54 invoices falling within the Section 10A period, amounting to Rs. 2,46,37,735/-.

Application of Law to Facts: The court concluded that acknowledgment of debt by the Corporate Debtor does not negate the bar under Section 10A.

Treatment of Competing Arguments: The Appellant's argument that acknowledgment of debt should allow inclusion of these invoices was rejected.

Conclusions: The court upheld the exclusion of invoices under Section 10A, reducing the claim amount to Rs. 92,09,732/-.

Issue 2: Running Account and Acknowledgment of Debt

Legal Framework and Precedents: The concept of a running account involves continuous transactions between parties, where the balance is acknowledged periodically.

Court's Interpretation and Reasoning: The court reasoned that even if there was a running account, invoices under the Section 10A period must still be excluded.

Key Evidence and Findings: The Corporate Debtor acknowledged the debt via a balance confirmation letter.

Application of Law to Facts: The acknowledgment did not affect the exclusion of invoices under Section 10A.

Treatment of Competing Arguments: The Appellant's reliance on the running account and acknowledgment was insufficient to include the barred invoices.

Conclusions: The court maintained that the statutory scheme of Section 10A prevails over acknowledgment of debt.

Issue 3: Applicability of Interest under the MSME Act

Legal Framework and Precedents: Section 15 of the MSME Act provides for statutory interest on delayed payments to MSMEs.

Court's Interpretation and Reasoning: The court found no agreement on interest between the parties, and interest was not included in the balance confirmation.

Key Evidence and Findings: The Adjudicating Authority noted the absence of an interest clause in certain invoices and lack of past interest charges.

Application of Law to Facts: The court held that interest under the MSME Act cannot be treated as operational debt in this context.

Treatment of Competing Arguments: The Appellant's claim for interest was dismissed due to the absence of an agreement and past practice.

Conclusions: The court excluded interest from the claim amount, aligning with the Adjudicating Authority's findings.

3. Significant Holdings

Preserve Verbatim Quotes of Crucial Legal Reasoning:

"Therefore, it cannot be successfully argued on behalf of the Operational Creditor that if the operational debt falling due within 10A period is acknowledged subsequently by the Corporate Debtor, it would be absolved of the bar under Section 10A of the Insolvency and Bankruptcy Code, 2016."

"Neither there was any interest paid nor there was any agreement for interest at any point of time, hence, the Adjudicating Authority has rightly excluded the interest."

Core Principles Established:

  • Section 10A's bar on recovery for defaults during the specified period is absolute, even with subsequent acknowledgment of debt.
  • Interest under the MSME Act requires an agreement or past practice to be considered in insolvency proceedings.

Final Determinations on Each Issue:

  • Invoices under Section 10A are excluded from the claim amount.
  • The running account and acknowledgment of debt do not override the statutory bar of Section 10A.
  • Interest under the MSME Act is not included in the claim amount due to lack of agreement.
  • The appeal is dismissed, affirming the Adjudicating Authority's order.

 

 

 

 

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