Operational Creditor's IBC Application Dismissed under Section 9: Setback for Creditors

The application filed by the Operational Creditor under Section 9 of the IBC was dismissed for not meeting the jurisdictional threshold of Rs. 1 crore and for being barred by Section 10A. The Tribunal set aside the order of the Adjudicating Authority admitting the application and initiating CIRP. The Corporate Debtor was released from all the rigours of law and allowed to function independently. The dismissal of the application does not preclude the Operational Creditor from seeking appropriate remedy before a competent forum.

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Issues Involved:
1. Applicability of the notification dated 24.03.2020 under Section 4 of the Insolvency and Bankruptcy Code (IBC), 2016.
2. Applicability of Section 10A of the IBC to the application filed under Section 9.
3. Determination of the date of default.
4. Existence of a pre-existing dispute.
5. Jurisdictional threshold for filing the application under the IBC.
6. Definition and scope of ‘Operational Debt’ and ‘Operational Creditor’.

Issue-wise Detailed Analysis:

1. Applicability of the Notification dated 24.03.2020 under Section 4 of the IBC:
The notification dated 24.03.2020 specified one crore rupees as the minimum amount of default for the purposes of Section 4 of the IBC. The Tribunal concluded that the notification is prospective in nature and does not apply retrospectively. The substantive rights of individuals are to be decided by the law that existed when the action was initiated. The notification does not save the applicant from the initiation of insolvency, especially in cases where defaults towards creditors have taken place before the pandemic.

2. Applicability of Section 10A of the IBC:
Section 10A, inserted by an Ordinance on 5th June 2020, suspends the initiation of corporate insolvency resolution process (CIRP) for defaults arising on or after 25th March 2020 for a period of six months or such further period, not exceeding one year. The Tribunal observed that the default in this case occurred on 03.01.2020, which is before the cut-off date of 25.03.2020, making the application maintainable. The Tribunal referred to the Supreme Court decision in Ramesh Kymal v. Siemens Gamesa Renewable Power Pvt Ltd to clarify that Section 10A does not apply to defaults committed before 25th March 2020.

3. Determination of the Date of Default:
The Tribunal found that the date of default was 03.01.2020 when the ‘Corporate Debtor’ failed to fulfill the obligation of shipping the goods. The Tribunal rejected the contention that the date of default was 30.04.2020, the date when the ‘Corporate Debtor’ was directed to return the money.

4. Existence of a Pre-existing Dispute:
The Tribunal found no pre-existing dispute between the parties. The ‘Corporate Debtor’ failed to bring to the notice of the Operational Creditor the existence of any pre-existing dispute within 10 days of the receipt of the Demand Notice as stipulated in Section 8(2) of the IBC. The dispute attempted to be raised through the reply does not fall under the definition of 'dispute' as provided under Section 5(6) of the IBC.

5. Jurisdictional Threshold for Filing the Application under the IBC:
The Tribunal held that the jurisdictional threshold for filing an application under the IBC was Rs. 1 crore as per the notification dated 24.03.2020. The application filed by the Operational Creditor on 16.09.2020 does not meet this threshold, as the total amount of debt claimed was less than Rs. 1 crore.

6. Definition and Scope of ‘Operational Debt’ and ‘Operational Creditor’:
The Tribunal referred to the definition of ‘Operational Debt’ under Section 5(21) and ‘Operational Creditor’ under Section 5(20) of the IBC. It concluded that the amount paid as advance towards the purchase of goods does not fall within the term ‘Operational Debt’ for the purpose of the IBC, as there was no delivery of goods or provision of services.

Conclusion:
The application filed by the Operational Creditor under Section 9 of the IBC was dismissed for not meeting the jurisdictional threshold of Rs. 1 crore and for being barred by Section 10A. The Tribunal set aside the order of the Adjudicating Authority admitting the application and initiating CIRP. The Corporate Debtor was released from all the rigours of law and allowed to function independently. The dismissal of the application does not preclude the Operational Creditor from seeking appropriate remedy before a competent forum.

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