2021 (7) TMI 1331 - Tri - Insolvency and Bankruptcy

Insolvency threshold not retroactive; Section 9 rights accrue at default

BLS Polymers Limited Versus M/s RMS Power Solutions Private Limited

The Tribunal held that the notification dated 24.03.2020, increasing the minimum threshold for insolvency proceedings to one crore rupees, does not apply ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - service of demand notice - HELD THAT:- In the case in hand, the demand notice was duly delivered prior to the notification dated 24.03.2020. When all the above provisions under Sections 7, 8, 9 & 10 of IBC are read together, it is observed that, the word ‘default’ is common to all and the right to file an application under any of these Sections 7, 9, 8 or 10 of IBC accrues only when the default has occurred. And in addition to that an application under Section 9 can only be filed, if demand notice is delivered under Section 8 of IBC, 2016, and 10 days’ time is given to the Corporate Debtor to bring to the notice of the operational creditor the existence of dispute, if any - therefore, even if the default has occurred, an application under Section 9 of IBC can only be filed, if an opportunity is given to the Corporate Debtor to file the reply to the demand notice issued - Under such circumstances, a situation may arise, when a person has delivered the demand notice prior to the issuance of notification dated 24.03.2020 but the reply to the demand notice was filed after the issuance of said notification but within ten days from the delivery of the demand notice, as it has happened, in the case in hand. Whether by issuance of said notification dated 24.03.2020 under proviso to Section 4 of IBC, can a right, which has already accrued to a person, can be taken away by that notification, which is admittedly issued thereafter? - HELD THAT:- Every notification has prospective effect and so far as the filing of application either under Section 7 or 9 or 10 is concerned, it can only be filed, if the default in making payment has occurred, except in the matter of Section 9 of IBC, where Demand Notice is to be delivered after the default. Under the IBC, a right to apply accrues when default has occurred. Therefore, the application under Section 7 or 9 of IBC can be filed within three years from the date when right accrues, i.e. when the default has occurred. If the statute provides a person to file an application within a prescribed period, when the right accrues, then by exercising delegated powers, an executive can not take away that right and it is also not the intention of the executive - No doubt, it is a well settled principle of law that once a right is vested, it cannot be divested. Thus, once the default has occurred prior to the issuance of notification dated 24.03.2020 and demand notice was also sent/ delivered prior to that notification, the enhancement of the threshold limit from one lakh to one crore rupees is not applicable in such matters. When the default has occurred prior to the notification and demand notice was not sent prior to that notification in that case, whether the present notification dated 24.03.2020 is applicable or not? - HELD THAT:- An application under Section 7, 9 or 10 IBC can only be filed, when the default has occurred. Therefore, the intention of the legislature is to give right to an aggrieved person under Section 7, 9 or 10 IBC, only when a default has occurred in making the payment of the dues - Once the default has occurred prior to the issuance of the said notification dated 24.03.2020 then that right cannot be taken away by issuance of that notification. Even in the matter, in which the default has occurred prior to the issuance of said notification dated 24.03.2020 and no demand notice (as in the case of Section 9) was delivered prior to that notification, in that case too, the said notification is not applicable. rather, the minimum threshold in that case, as per Section 4 of IBC, 2016, is one lakh rupees and not one crore rupees - the notification is applicable only in respect of the default which has occurred on or after 24.03.2020 and not prior to that. Thus, in the present case, it is noticed that the demand notice was delivered prior to the issuance of the notification dated 24.03.2020. Hence, the said notification dated 24.03.2020 is not applicable in the case of the petitioner. List the matter for hearing on other issues on 09.08.2021. Issues Involved:1. Applicability of the notification dated 24.03.2020, which enhanced the minimum threshold amount to trigger insolvency proceedings from one lakh to one crore.2. Rights of the petitioner under Section 9 of the Insolvency & Bankruptcy Code, 2016 (IBC) based on the default amount and timing of the demand notice.Issue-wise Detailed Analysis:1. Applicability of the Notification Dated 24.03.2020:The petitioner filed an application under Section 9 of IBC for initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor for a defaulted amount of Rs. 35,74,942/-. A preliminary objection was raised regarding the notification dated 24.03.2020 issued by the Ministry of Corporate Affairs, which increased the minimum threshold amount to trigger insolvency proceedings from one lakh to one crore.The key admitted facts are:- The invoice was raised on 07.08.2019 and 05.09.2019.- The demand notice was delivered on 16.03.2020, prior to the notification dated 24.03.2020.- The Corporate Debtor received the demand notice on 21.03.2020 and raised the question of maintainability based on the enhanced threshold.The Tribunal noted that the default and the delivery of the demand notice occurred prior to the issuance of the notification. The Tribunal examined Section 4 of IBC, which allows the Central Government to specify a higher minimum amount of default, up to one crore rupees. However, the notification did not specify a retrospective effect.2. Rights of the Petitioner under Section 9 of IBC:The petitioner argued that the cause of action for initiating the application under Section 9 accrued on the default by the Corporate Debtor, as defined under Section 3(12) of IBC. The invoices became due and payable before the notification date, and the demand notice was served prior to the notification. The petitioner relied on several judgments, including the Supreme Court's decision in Sesh Nath Singh vs. Baidyabati Sheoraphuli Cooperative Bank Ltd., which supports the prospective effect of statutes unless explicitly stated otherwise.The Tribunal considered the relevant provisions of Sections 7, 8, 9, and 10 of IBC, observing that the right to file an application accrues when the default occurs. The Tribunal emphasized that the notification dated 24.03.2020 should have a prospective effect, meaning it applies only to defaults occurring after its issuance.The Tribunal addressed two specific circumstances:- Where the default occurred, and the demand notice was delivered before the notification, but the application was filed after the notification.- Where the default occurred before the notification, but no demand notice was sent before the notification.For the first circumstance, the Tribunal concluded that the right to apply under Section 9 vested when the default occurred, and the demand notice was delivered before the notification. Therefore, the enhanced threshold of one crore rupees is not applicable.For the second circumstance, the Tribunal held that the notification is not applicable if the default occurred before its issuance, even if the demand notice was not sent prior. The right to apply under Section 9 remains based on the original threshold of one lakh rupees.Conclusion:The Tribunal concluded that the notification dated 24.03.2020, enhancing the threshold amount to one crore rupees, is not applicable to defaults occurring before its issuance. The petitioner's case, where the demand notice was delivered before the notification, is not affected by the enhanced threshold. The matter was listed for further hearing on other issues on 09.08.2021.