M/s Tharakan Web Innovations Pvt. Ltd. Vs Cyriac Njavally (NCLT Kerala)
Conclusion: Notification dated 24.03.2020 does not save the Applicant/ Corporate Debtor from the initiation of insolvency especially in cases where defaults towards creditors have taken place before the COVID 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. 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.
Held: In the present case, the corporate debtor, M/s Tharakan Web Innovations Pvt Ltd, contended that the provision of section 4 of IBC Code was modified vide Notification No. S. O. 1205(E) dated 24.03.2020 by the Ministry of Corporate Affairs enhancing the minimum amount of default as Rs.1 crore with effect from 24.03.2020. Therefore, the date of initiation of the proceedings on the part of the Operational Creditor now having been admittedly being 25.09.2020 (the date of filing in this Registry) and the claim herein being only to the tune of Rs.25 lakhs, this Application was clearly hit by Section 4 of the Insolvency and Bankruptcy Code as the minimum amount of debt required to file an application now stood enhanced to Rs.1 crore, and that the application was to be dismissed in limine. Operational creditor contended that the Notification dated 24.03.2020 did not save the Applicant/ Corporate Debtor from the initiation of insolvency especially in cases where defaults towards creditors had 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 had taken place, it would necessarily require a legislative amendment, and that a mere issuance of the notification would not suffice. It was held that in the instant application filed under Section 9 of IBC, the debt had become due on 06.07.2019. That on 25.02.2020, the Demand Notice in Form 3 under Rule 5 of the Insolvency and Bankruptcy Code, 2016 demanding payment of Rs. 31,33,595/- (Rupees Thirty-One Lakhs Thirty-Three Thousand Five Hundred and Ninety-Five Only) was sent to the Corporate Debtor at its Registered Office through speed post. However, no reply raising any dispute had been received by the Respondent/Operational Creditor within the stipulated period of ten days from 25.02.2020. It was therefore, evident that despite the expiry of 10 days from the date of service of the demand notice, neither dispute nor repayment of the due amount had been brought to the notice of the Operational Creditor. This would clearly show that Applicant/Corporate Debtor was not able to pay its debts taken in the normal course of business. Since, the Demand Notice in Form 3 had been sent by the Operational Creditor to the Corporate Debtor and after waiting for 10 days form that date only, Operational Creditor filed the application, the contention of the Applicant/ Corporate Debtor had no legs to stand. Since the application had been filed by the Applicant after exhausting the remedy by issuing the statutory notice, the application was in order. The NCLT Chennai had also taken the view that the March 24 notification was prospective in nature in the case of M/s Arrowline Organic Products Private Ltd v Rockwell Industries Ltd.
FULL TEXT OF THE ITAT JUDGEMENT
This IA/175/KOB/2020 has been filed by the Corporate Debtor in IBA/34/KOB/2020 under Rule 32 of the NCLT Rules, 2016 for the following relief: –
“Pass an order directing that IBA/34/KOB/2020 is not maintainable in the light of Annexure A2 Notification”
Submissions by the Applicant/ Corporate Debtor.
2. Form 3 Demand Notice dated 25.02.2020 under Rule 8 of the Insolvency and Bankruptcy Code 2016 has been filed by the Applicant/Corporate Debtor only on 02.03.2020. Obviously, the Applicant/Corporate Debtor had time till 12.03.2020 to file its reply disputing the demand and / or making good the same. An Application under Section 9 becomes maintainable only after the expiry of the period of 10 days from the date of delivery of Form 3 Notice on the Corporate Debtor. The said period of 10 days is neither optional nor elective but is mandatory in nature.
3. Section 9 of the Companies Act, 2013 is reproduced below: –
“Section 9. Application for initiation of corporate insolvency resolution process by operational creditor.
“(1) After the expiry of the period of ten days from the date of delivery of notice or invoice demanding payment under Sub-Section (1) of Section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under Sub-Section (2) of Section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.
(2) The application under Sub-Section (1) shall be filed in such form and manner and accompanied with such fee as may be prescribed.
(3) The operational creditor shall along with the application furnish_
(a) copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor,
(b) an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt;
(c) a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt [by the corporate debtor, if available;]
[(d) a copy of any record with information utility confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available; and
(e) any other proof confirming that there is no payment of an unpaid operational debt by the corporate debtor or such other information, as may be prescribed;
(4) An operational creditor initiating a corporate insolvency resolution process under this section, may propose a resolution professional to act as an interim resolution professional.
(5) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order_
(i) admit the application and communicate such decision to the operational creditor and the corporate debtor if_,
(a) the application made under sub-section (2) is complete;
(b) there is no [payment] of the unpaid operational debt;
(c) the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor;
(d) no notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility; and
(e) there is no disciplinary proceeding pending against any resolution professional proposed under sub-section (4), if any;
(ii) reject the application and communicate such decision to the operational creditor and the corporate debtor, if_
(a) the application made under sub-section (2) is incomplete;
(b) there has been 3 [payment] of the unpaid operational debt;
(c) the creditor has not delivered the invoice or notice for payment to the corporate debtor,
(d) notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility; or
(e) any disciplinary proceeding is pending against any proposed resolution professional:
Provided that Adjudicating Authority, shall before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the Adjudicating Authority.
(6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5) of this section”.
