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2023 (1) TMI 195 - SC - Insolvency and BankruptcyCIRP proceedings - Operational Creditors - NCLT / NCLAT rejected the application - Scope of arbitration clause - computation of the period of limitation in regard to an application filed under Section 9 of IBC - existence of pre-existing dispute or not - whether the period during which the operational creditor s right to proceed against or sue the corporate debtor that remain suspended by virtue of Section 22 (1) of the Sick Industrial Companies (Special Provisions Act, 1985) (SICA) can be excluded, as provided under Section 22 (5) of SICA or not - HELD THAT - Section 22 (1), SICA, would make it clear that there was a statutory bar to take to any proceeding for realisation of a right referred to in the said Section against an industrial company when once an enquiry under Section 16, SICA is pending against it or any scheme referred to under Section 17 thereof is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under Section 25 relating to an industrial company is pending, except with the consent of the Board or the Appellate Authority, as the case may be. As noticed earlier, SICA came to be repealed and IBC came into force (Sections 7 to 9 and various other Sections), on the same day viz, on 01.12.2016. Section 6, IBC provides that where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate CIRP in respect of such corporate debtor in the manner provided under Chapter II of IBC. Section 8, which falls under Chapter II, deals with insolvency resolution by operational creditor. It provides that an operational creditor may, on the occurrence of default, deliver a demand notice of unpaid of operational debt or copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed. It is apposite to note that a seemingly printing error had occurred in Section 8 (1), IBC inasmuch as instead of a demand notice of unpaid operational debt it is printed as a demand notice of unpaid operational debtor. Evidently, this must have occurred as in the Gazette Notification also the word debtor is following the words unpaid operational . Section 238A, IBC makes the provisions of the Limitation Act, 1963 applicable to computation of the period of limitation in regard to proceedings before the Adjudicating Authority and the other forums. This position is made explicitly clear in the decision of this Court in B.K. EDUCATIONAL SERVICES PRIVATE LIMITED VERSUS PARAG GUPTA AND ASSOCIATES 2018 (10) TMI 777 - SUPREME COURT - The decision in B.K. Educational Services Private Limited would thus reveal that Articles 137 and 5 of the Limitation Act, 1963 are applicable to applications filed under Sections 7 and 9 of IBC. It be so, the position is that the period of limitation is three years from the right to apply accrues but the delay is condonable on sufficient grounds. It is to be noted that the third column in Article 137 of the Limitation Act posits that time runs when the right to apply accrues . When the limitation period for initiating CIRP under Section 9, IBC is to be reckoned from the date of default, as opposed to the date of commencement of IBC and the period prescribed therefor, is three years as provided by Section 137 of the Limitation Act, 1963 and the same would commence from the date of default and is extendable only by application of Section 5 of the Limitation Act, 1963 it is incumbent on the Adjudicating Authority to consider the claim for condonation of the delay when once the proceeding concerned is found filed beyond the period of limitation - In the case on hand, indubitably, the question whether the delay occurred in the matter of filing of application under Section 9, IBC is condonable or not, was not considered. A bare perusal of the impugned order would reveal that after taking into account the date of default and the date of filing of the application under Section 9, IBC the NCLAT held it as time barred. When once it is so found we would have remanded the matter for consideration of the question of limitation afresh, but for the fact that the application under Section 9, IBC was dismissed assigning reason of existence of pre-existing dispute as well. When the agreement entered into between the parties carries an arbitration clause and when the parties mutually consented and sought to proceed with arbitration before the High Court and further, when the arbitration proceedings are pending, we are of the view that the parties shall be left with the liberty to raise all contentions before the arbitrator, except the legal questions discussed and decided in this judgment. Appeal dismissed.
Issues Involved:
1. Computation of the period of limitation under Section 9 of the Insolvency and Bankruptcy Code (IBC). 2. Existence of a 'pre-existing dispute' between the appellant and the respondent. Detailed Analysis: 1. Computation of the Period of Limitation: The first issue revolves around whether the period during which the operational creditor's right to proceed against or sue the corporate debtor was suspended under Section 22(1) of the Sick Industrial Companies (Special Provisions Act, 1985) (SICA) can be excluded, as provided under Section 22(5) of SICA, in computing the period of limitation for an application filed under Section 9 of the IBC. The appellant contended that the period from 31.08.2010 to 01.12.2016, during which the respondent was declared a 'sick company' and the proceedings were pending before the BIFR, should be excluded. This exclusion would place the application within the three-year limitation period prescribed by Article 137 of the Limitation Act. The appellant relied on the decision in Paramjeet Singh Patheja v. ICDS Ltd. (2006) to support this contention. The respondent argued that Section 22(1) of SICA did not provide blanket protection against the running of the cause of action and merely suspended legal proceedings of coercive nature. The respondent also highlighted discrepancies in the appellant's claims regarding the quantum of outstanding dues and the date of the cause of action. The Court referenced Section 22(1) and 22(5) of SICA, noting that there was a statutory bar to legal proceedings for recovery against a 'sick company' without BIFR's consent. The Court also cited the decision in KSL & Industries Ltd. Vs. M/s. Arihant Threads Ltd (2015) to support the interpretation that recovery proceedings were suspended under Section 22(1) of SICA, and thus, the period of suspension should be excluded in computing the limitation period. The Court concluded that Section 238A of the IBC makes the Limitation Act applicable to proceedings under the IBC. Therefore, the period of suspension under Section 22(1) of SICA should be considered a sufficient cause for condoning the delay under Section 5 of the Limitation Act. The Court remanded the matter for reconsideration of the question of limitation afresh. 2. Existence of a 'Pre-Existing Dispute': The second issue concerns whether the respondent had raised a dispute describable as a 'pre-existing dispute' warranting the dismissal of the application under Section 9 of the IBC. The appellant argued that the respondent's contentions regarding shortfall in gas supply and losses due to disconnection were not genuine disputes but mere excuses to avoid payment. The appellant pointed to a letter dated 04.01.2013, where the respondent agreed to pay the bills once the restructuring was agreed by BIFR, indicating no dispute existed. The respondent maintained that there was a genuine dispute regarding the dues, as evidenced by the letter dated 04.01.2013 and the proceedings before the BIFR. The respondent also cited the Commercial Suit No.92 of 2017 and the subsequent arbitration proceedings as evidence of the ongoing dispute. The Court referred to the decision in Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. (2018), which established that the existence of a 'pre-existing dispute' should entail dismissal of an application under Section 9 of the IBC. The Court noted that the respondent had raised contentions regarding the shortfall in gas supply and losses due to disconnection in a timely manner. The Court concluded that the respondent had successfully raised a dispute describable as a 'pre-existing dispute' before the receipt of the demand notice under Section 8 of the IBC. Therefore, the dismissal of the application under Section 9 of the IBC on the ground of 'pre-existing dispute' was upheld. The Court also acknowledged the ongoing arbitration proceedings between the parties and left it to the arbitrator to decide on all contentions, except the legal questions discussed and decided in this judgment. Conclusion: The appeal was dismissed, and the Court upheld the findings of the Tribunals regarding the 'pre-existing dispute' and remanded the matter for reconsideration of the question of limitation. The parties were left with the liberty to raise all contentions before the arbitrator, except the legal questions decided in this judgment.
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