Case Law Details
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: –
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