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2021 (3) TMI 112 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Debt - minimum amount of default - existence of debt and dispute or not - whether Notification under Section 4 of the Code raising the minimum default limit be applicable to the applications initiated after the Notification date? - HELD THAT - In the absence of clear indication of a contrary intention in the notification issued on 24.03.2020 by the Ministry of Corporate Affairs, Government of India, then the substantive rights of individuals to an action is to be decided by the Law that existed when the action was initiated as the case may be. In the present case, notwithstanding the fact, the Central Government is delegated with a power to quantify the amount of default at any time after the enactment of the I B Code, this power will not deny the right which had already accrued to an Operational Creditor at the time of default of the debt. Occurrence of Default - HELD THAT - The Operational Creditor gets the right to trigger the CIR Process . Section 9(1) of the Code confers a substantive right to file and to initiate CIRP against the Corporate Debtor. It is needless for this Tribunal to point out that upon an application being filed by the concerned person in terms of the ingredients of Section 9(1) of the Code and the default sum is quite in tune with Section 4 of the Code, the application is to be admitted by the Adjudicating Authority , of course subject to the ingredients of Sections 9(2) 9(5) of the Code. The Notification dated 24.03.2020 does not save the Applicant 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. This Tribunal vide order dated 16.10.2020 had already observed that since the cause of action arose (on 03.01.2020) before 25.03.2020, this application is maintainable and therefore, this point of non-maintainability has no legs to stand. Whether the provisions of Section 10A stand attracted to an application under Section 9 which was filed after 5th June 2020 (the date on which the provision came into force) in respect of a default which has occurred after 25 March 2020? - HELD THAT - In the present case, it was asserted that the onset of Covid-19, which was the reason for the insertion of Section 10A, has nothing to do with the default as the part of the respondent in paying the outstanding operational debt of the applicant, which owes its existence even before the onset of the pandemic. The proviso to Section 10A stipulates that no application shall ever be filed for the initiation of the CIRP of a corporate debtor for the said default occurring during the said period . The explanation which has been inserted for the removal of doubts clarifies that Section 10A shall not apply to any default which has been committed under Sections 7, 9 and 10 before 25 March 2020. In this application, the Corporate Debtor on 31.12.2019 assured the Operational Creditor that the shipment of goods would be made within one week, but the same was not shipped on 14.01.2020. The date of refusal to deliver the goods and return the money is not to be treated as the date of default, as the date of default occurred on the date of shipment which was not fulfilled and complied by the Corporate Debtor and the acknowledgement made thereafter. The date of deafault is the date on which the Corporate Debtor failed to fulfil the obligation. Therefore, it seems that the Corporate Debtor is trying to take undue benefits of the lockdown and Section 10A inserted into the IBC. Pre-existing dispute - HELD THAT - This Tribunal finds that the application made by the Operational Creditor is complete in all respects as required by law and that the Corporate Debtor is in default of a debt due and payable, and the default is in excess of minimum amount of One Lakh rupees stipulated under Section 4(1) of the IBC. Therefore, the default stands established and there is no reason to deny the admission of the Application. Hence, the Adjudicating Authority decided to admit this application and orders initiation of CIRP against the Corporate Debtor. Application admitted - moratorium declared.
Issues:
1. Applicability of the notification raising the minimum default limit under Section 4 of the IBC. 2. Applicability of Section 10A of the IBC. 3. Definition and status of the applicant as an Operational Creditor. 4. Existence of any pre-existing dispute between the parties. Detailed Analysis: 1. Applicability of the Notification Raising the Minimum Default Limit: The Corporate Debtor contended that the application is not maintainable as it does not meet the increased pecuniary limit of one crore rupees, per the notification dated 24.03.2020. The Tribunal clarified that the notification is prospective and does not affect rights accrued before its issuance. The default occurred on 03.01.2020, prior to the notification, making the application maintainable. 2. Applicability of Section 10A of the IBC: The Corporate Debtor argued that the default is a "Covid default" and thus protected under Section 10A, which suspends initiation of CIRP for defaults occurring after 25.03.2020. The Tribunal noted that the default date is 03.01.2020, predating the pandemic-related provisions. The Tribunal referenced the Supreme Court's judgment in Ramesh Kymal vs. M/s Siemens Gamesa Renewable Power Pvt Ltd, explaining that Section 10A does not apply to defaults before 25.03.2020. Therefore, the application is not barred by Section 10A. 3. Definition and Status of the Applicant as an Operational Creditor: The Corporate Debtor claimed that the applicant does not qualify as an Operational Creditor since no goods or services were supplied. The Tribunal rejected this argument, noting that the advance payment for goods constitutes an operational debt. The Corporate Debtor's failure to deliver the goods and return the advance payment substantiates the applicant's status as an Operational Creditor. 4. Existence of Any Pre-Existing Dispute: The Corporate Debtor argued that a pre-existing dispute existed, citing disruptions due to the Covid-19 lockdown. The Tribunal found that the Corporate Debtor did not raise any dispute within the statutory period after receiving the demand notice. The Tribunal observed that the Corporate Debtor acknowledged the debt and default in its communications, and the alleged dispute does not meet the criteria under Section 5(6) of the IBC. Conclusion: The Tribunal found the application complete and the Corporate Debtor in default of a debt exceeding the minimum amount stipulated under Section 4(1) of the IBC. Consequently, the Tribunal admitted the application and ordered the initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. An Interim Resolution Professional (IRP) was appointed, and a moratorium under Section 14 of the IBC was declared, prohibiting certain actions against the Corporate Debtor during the CIRP period. The Operational Creditor was directed to deposit a sum to cover expenses related to public notice and claim invitations. The Tribunal also ordered communication of the order to relevant parties and the Registrar of Companies for compliance. Order: 1. The petition under Section 9 of the IBC is admitted. 2. A moratorium under Section 14 of the IBC is declared. 3. An Interim Resolution Professional is appointed. 4. The Operational Creditor is to deposit ?2,00,000 for CIRP expenses. 5. The Registry is directed to communicate the order to relevant parties and the Registrar of Companies.
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