2025 (3) TMI 1142 - AT - IBC

Maintainability of petition - operational debt of a sum exceeding rupees one crore due and payable by the respondent to the petitioner exists as on the date of filing of this petition or not - pre-existing dispute as to the subject debt between the parties or not - initiation of Corporation Insolvency Resolution Process (CIRP) against the respondent is barred under section 10A of the Insolvency Bankruptcy Code 2016 or not. Whether an operational debt of a sum exceeding rupees one crore due and payable by the respondent to the petitioner exists as on the date of filing of this petition? - If so whether the respondent defaulted in repayment of the same? - HELD THAT - The answer is unequivocally yes because admittedly by as per the statement of account of the financial year 2020-2021 and financial year 20212022 the due at the end of respective financial year is shown as Rs.1, 00, 49, 270/- (Rupees One Crore Forty Nine Thousand and Two Hundred and Seventy only). Further it is seen that the debt due is not hit by limitation as the date of default being 14.03.2020 as claimed by the Operational Creditor or 15.12.2020 as the demand notice falls within 3 years of the filing of application. Whether there is a pre-existing dispute as to the subject debt between the parties? If so whether the petition is maintainable? - HELD THAT - The issue has also been dealt with correctly by the Ld. Adjudicating Authority by holding that the Corporate Debtor has accepted the supplies made by the Operational Creditor without any goods being returned and without raising any issues that since the payment for supplies are to be made within 30 days from the date of invoice he should have raised disputes if any for each supply within such or reasonable period that no record have been placed by the Appellant before the Ld. Adjudicating Authority to show that he has raised quality complaints as per the general practice in the business and therefore the claim of a pre-existing dispute with respect to the debt cannot be accepted for the purpose of rejecting the Section 9 application of the Operational Creditor. Whether the initiation of Corporation Insolvency Resolution Process (CIRP) against the respondent is barred under section 10A of the Insolvency Bankruptcy Code 2016? If so whether the Company Petition is maintainable? - HELD THAT - In the present case the debt which due remained to be paid on 11.11.2022 was Rs.1, 00, 49, 270/- consisting of the amounts relation to in 28 invoices that were raised by the Operational Creditor and were not paid by the Corporate Debtor within the period of 30 days of raising of each invoice till the date of filing of the Section 9 application. Out of these 28 invoices 27 invoices fell due for payment and were defaulted on in the period 25.03.2020 to 25.03.2021 that is Section 10 A period if 30 days added to the date of raising of each invoice. Thus clearly the debt due on these 27 invoices will attract the provision of Section 10 A of the Code. It is to be seen that this is a running account of goods received and payments made by the Corporate Debtor and though the payments have not been made invoice-wise it is clear that the Corporate Debtor has cleared about Rs. 74.95 lakhs out of Rs.1, 05, 08, 583/- being the opening balance of the dues to be paid as on 01.04.2020 and that the amounts pending to be paid pertain to invoices that were raised during Section 10 A period that is during the period 25.03.2020 to 25.03.2021. In the instant case each unpaid invoice gives rise to a distinct separate default. Further only Rs.2, 86, 762/- is the amount that is in default from the pre-section 10A period. Even though the Corporate Debtor has acknowledged the debt that has accumulated in the period 25.03.2020 to 16.09.2020 it cannot be taken as a continuation of the default claimed to have been committed on 14.03.2020 for the reason being that the Corporate Debtor had repaid a total of Rs.79, 54, 973/- of the amount due as on 01.04.2020 during the period of 01.04.2020-31.03.2021. Thus there will be a bar on including the amount involved in the 27 invoices that fell due during the Section 10 A period to the total debt due for the purpose of initiating CIRP as per the proviso to Section 10 A of the Code. Accordingly the threshold limit of Rs. 1 crore as stipulated in Section 4 will not be met and as a result the order of the Ld. Adjudicating Authority admitting the Corporate Debtor into CIRP will have to be set aside. There are no hesitation in saying following the decision of the Hon ble Apex Court in the matter of Ramesh Kymal 2021 (2) TMI 394 - SUPREME COURT that the amount represented by these 28 invoices will remain a debt due and that they will not be extinguished but they cannot be used as a basis to initiate CIRP proceedings. The Respondent will continue to have the right to recover the said dues by all the means available to him including approaching commercial courts except resorting to proceedings under the I B Code. Conclusion - i) The operational debt claimed exceeded Rs. 1 crore but the inclusion of invoices that fell due during the Section 10A period was barred reducing the debt below the threshold required for CIRP initiation. ii) The alleged pre-existing dispute was not substantiated and thus did not bar the CIRP initiation. iii) The application of Section 10A barred the inclusion of debts that arose during the specified period and the remaining debt from the pre-Section 10A period did not meet the threshold limit under Section 4 of the Code. Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether an operational debt exceeding Rs. 1 crore was due and payable by the Corporate Debtor to the Operational Creditor as of the date of filing the petition, and whether the Corporate Debtor defaulted on repaying the same.
• Whether there was a pre-existing dispute regarding the debt between the parties, affecting the maintainability of the petition.
• Whether the initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor was barred under Section 10A of the Insolvency and Bankruptcy Code, 2016, and whether the petition was maintainable.

2. ISSUE-WISE DETAILED ANALYSIS

Existence of Debt and Default:

The relevant legal framework involves Section 9 of the Insolvency and Bankruptcy Code, 2016, which allows operational creditors to initiate CIRP if the operational debt exceeds the threshold limit. The Tribunal found that the operational debt claimed by the Operational Creditor was Rs. 1,00,49,270/-, which exceeded the threshold limit of Rs. 1 crore. The debt was acknowledged by the Corporate Debtor in financial statements for the years 2020-2021 and 2021-2022, and the default was recorded in the NeSL portal with a default date of 14.03.2020.

Pre-existing Dispute:

The Tribunal examined whether there was a pre-existing dispute that could bar the CIRP initiation. The Corporate Debtor claimed a dispute over the quality of goods supplied, but the Tribunal noted that no goods were returned, and no disputes were raised within a reasonable period after the supplies. The Tribunal concluded that the claim of a pre-existing dispute was not substantiated with evidence, thus not affecting the maintainability of the Section 9 application.

Application of Section 10A:

Section 10A of the Code prohibits CIRP initiation for defaults occurring between 25.03.2020 and 25.03.2021. The Tribunal analyzed whether the default fell within this period. Despite the Corporate Debtor's acknowledgment of debt post-25.03.2021, the Tribunal found that the default date was 14.03.2020, predating the Section 10A period. However, the Tribunal noted that most invoices fell due during the Section 10A period, and the default on these invoices was distinct and separate from the pre-Section 10A default. Therefore, the Tribunal concluded that the inclusion of these invoices in the debt calculation was barred by Section 10A.

3. SIGNIFICANT HOLDINGS

The Tribunal held that:

• The operational debt claimed exceeded Rs. 1 crore, but the inclusion of invoices that fell due during the Section 10A period was barred, reducing the debt below the threshold required for CIRP initiation.
• The alleged pre-existing dispute was not substantiated, and thus did not bar the CIRP initiation.
• The application of Section 10A barred the inclusion of debts that arose during the specified period, and the remaining debt from the pre-Section 10A period did not meet the threshold limit under Section 4 of the Code.

The Tribunal set aside the order of the Adjudicating Authority admitting the Corporate Debtor into CIRP, emphasizing that the debt remains due but cannot be used as a basis for CIRP initiation. The Tribunal allowed the appeal and closed all pending interlocutory applications.