Limitation and minimum default threshold bar a section 9 insolvency application when filing is delayed and default is below the prescribed limit

A section 9 insolvency application based on invoices due in July and August 2017 was filed in June 2021 and was held barred by limitation under Article 137 of the Limitation Act because it was brought more than three years after the right to apply accrued. The proceeding was also found not maintainable because the claimed default of Rs. 5,22,852.25 was below the minimum default threshold of Rs. 1 crore prescribed by Notification No. 1205(E) dated 24.03.2020. The request to initiate the corporate insolvency resolution process therefore failed on both grounds.

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Issues: (i) whether the section 9 application was barred by limitation under Article 137 of the Limitation Act, 1963; (ii) whether the application was maintainable in view of the minimum default threshold prescribed by Notification No. 1205(E) dated 24.03.2020.

Issue (i): Whether the section 9 application was barred by limitation under Article 137 of the Limitation Act, 1963.

Analysis: The claim was based on invoices that fell due in July 2017 and August 2017, while the application was filed in June 2021. Article 137 provides a three-year period for applications for which no specific limitation period is prescribed, counted from the date when the right to apply accrues. On the dates pleaded, the filing was beyond three years from the date of default.

Conclusion: The application was barred by limitation and this issue was decided against the applicant.

Issue (ii): Whether the application was maintainable in view of the minimum default threshold prescribed by Notification No. 1205(E) dated 24.03.2020.

Analysis: The application claimed a default of Rs. 5,22,852.25, whereas the notification fixing the minimum default threshold at Rs. 1 crore was applicable. Since the claimed default was far below the prescribed threshold, the proceeding could not be entertained.

Conclusion: The application was not maintainable on account of the deficient default amount and this issue was decided against the applicant.

Final Conclusion: The request to initiate the corporate insolvency resolution process failed on both limitation and pecuniary threshold grounds, and the proceeding was dismissed.

Ratio Decidendi: A section 9 insolvency application must be filed within the limitation period prescribed by Article 137 and must also satisfy the minimum default threshold in force on the date of filing.

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