2019 (11) TMI 1535 - Tri - Insolvency and Bankruptcy

Petition for Corporate Insolvency Resolution Dismissed Due to Limitation Period

The Adjudicating Authority dismissed the petition seeking initiation of the Corporate Insolvency Resolution Process against the Corporate Debtor due to ... Maintainability of application - initiation of Corporate Insolvency Resolution Process - inability of Corporate Debtor to liquidate its operational debt - existence of debt and dispute or not - time limitation - HELD THAT:- Mere plain reading of the provisions shows that under Section 8 of the Code on the occurrence of default, the Operational Creditor at first is required to deliver the demand notice of unpaid Operational Creditor and liberty is given to the Corporate Debtor to bring the notice of the Operational Creditor regarding existence of the disputes and the payment of or other unpaid Operational Debt within a time of 10 days of the receipt of the demand notice. Whereas Section 9 of the Code says that after the expiry of period of 10 days from the date of delivery of the notice or invoice demanding payment under sub-section 1 of Section 8, if the Operational Creditor does not receive the payment from the Corporate Debtor or notice of the dispute has not been raised by the Corporate Debtor then the Operational Creditor may file an application before the Adjudicating Authority - When we read these two provisions together than it can be said that CIRP can only be initiated by filing an application under Section 9 of the Code, whereas the Section 8 lays down a provision which cast a duty upon the Operational Creditor to deliver a demand notice before taking any action under Section 9 of the Code. This Adjudicating Authority would like to consider the submissions made on behalf of the Operational Creditor on the point of limitation. Admittedly, it is a case of Operational Creditor that the invoices are for the period for 2nd April 2014 to 2nd June 2015. This Adjudicating Authority is of the considered view that limitation shall be calculated from the period when right to sue accrues and the date on which the Operational Creditor filed the application and will not be calculated from that day on which the Operational Creditor had sent the email upon the Corporate Debtor on 23rd July, 2016 when the Operational Creditor has not received the reply from the Corporate Debtor in respect of the e-mail dated 23rd July, 2016. At this juncture, we would like to mention this fact that first demand was made by Operational Creditor on 29th July, 2015, which would be evident from the e-mail at Page 61 Annexure A-17. Time Limitation - HELD THAT:- We are unable to accept the contention of the Operational Creditor that limitation shall run from the date, when demand notice was sent/delivered, rather we are of the considered view that Operational Creditor must have filed an application within three years from the date when the right to sue accrued i.e. from 02.06.2015, the last dated invoice or from 29th July, 2015 when first demand was made for the due amount, till the end of limitation period of three years i.e. 01.06.2018 or 28.07.2018 if I shall calculate on the basis of issuance of first demand under email dated 29.07.2015. But, the present application is filed on 12.03.2019 and therefore it is filed much after the period prescribed under Article 137 of the Limitation Act. Petition is dismissed as it is barred by limitation. Issues Involved:1. Inability to liquidate operational debt by Corporate Debtor.2. Validity of demand notice issued under Section 8 of the Insolvency & Bankruptcy Code, 2016.3. Timeliness and limitation of the application filed under Section 9 of the Insolvency & Bankruptcy Code, 2016.Detailed Analysis:1. Inability to Liquidate Operational Debt by Corporate Debtor:The petition was filed by Vidyut Insulation Private Limited under Section 9 of the Insolvency & Bankruptcy Code, 2016, seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor due to its inability to liquidate operational debt amounting to Rs. 23,87,330/-. The Operational Creditor, engaged in manufacturing products like Poly Tubular Bags, supplied these to the Corporate Debtor, who accepted the deliveries as evidenced by logistics receipts and raised invoices from 02.04.2014 to 02.06.2015.2. Validity of Demand Notice Issued Under Section 8 of the Code:The Operational Creditor issued a demand notice on 21.09.2018 as required under Section 8 of the Code, which remained unserved. The Corporate Debtor was duly served by courier service but did not respond, leading to ex-parte proceedings. The relevant provisions of Section 8 and Section 9 of the Code were discussed, emphasizing that the Operational Creditor must deliver a demand notice upon default, and the Corporate Debtor has ten days to respond.3. Timeliness and Limitation of the Application Filed Under Section 9 of the Code:A significant issue was whether the application was within the limitation period. The invoices were dated from 02.04.2014 to 02.06.2015. The Operational Creditor argued that the cause of action arose on 23.07.2016 when no reply was received from the Corporate Debtor to an email. The Supreme Court's decision in BK Educational Services Private Limited v. Parag Gupta and Associates was cited, stating that the limitation period under Article 137 of the Limitation Act is three years from the date of default.The Adjudicating Authority analyzed whether the application was filed within the prescribed time. The right to sue accrued on 02.06.2015 (last invoice date) or 29.07.2015 (first demand date). The application should have been filed by 01.06.2018 or 28.07.2018, respectively. However, the application was filed on 12.03.2019, beyond the three-year limitation period.Conclusion:The Adjudicating Authority concluded that the application was barred by limitation. The limitation period should be calculated from the date the right to sue accrued, not from when the demand notice was sent. The petition was dismissed as it was filed after the prescribed limitation period.