2024 (3) TMI 289 - AT - Insolvency and Bankruptcy

Section 9 petition dismissed as 26 invoices time-barred under three-year limitation period without running account evidence

The NCLAT dismissed an appeal challenging the rejection of a Section 9 petition under the Insolvency and Bankruptcy Code. The Adjudicating Authority had ... Application under Section 9 of the Insolvency and Bankruptcy Code and time bar - limitation under Article 137 of the Limitation Act - running account doctrine - requirement of written acknowledgment to extend limitation - IBC is not a money recovery forum - threshold requirement under Section 4 of the IBCApplication under Section 9 of the Insolvency and Bankruptcy Code and time bar - limitation under Article 137 of the Limitation Act - Whether the Section 9 application was barred by limitation in respect of the 26 invoices dated between 25.03.2011 and 28.10.2016. - HELD THAT: - The Tribunal found that 26 of the invoices relied upon by the Operational Creditor carried due dates between 09.04.2011 and 12.11.2016 and, when compared with the date of filing of the Section 9 petition (08.09.2020), were more than three years old. In the absence of any subsequent written acknowledgment by the Corporate Debtor in respect of those invoices, the period of limitation under Article 137 of the Limitation Act was not extended. The Tribunal applied the settled law that Article 137 governs applications under the Code and that IBC is not intended to revive time barred debts, relying upon the principles in B.K. Educational Services and Babulal Vardharji Gurjar (as applied by the Adjudicating Authority). Consequently the 26 invoices could not be counted to avert the bar of limitation for the Section 9 application. [Paras 5, 7, 8]The Section 9 application was time barred insofar as the 26 older invoices are concerned and those invoices cannot be relied upon to sustain the petition.Running account doctrine - requirement of written acknowledgment to extend limitation - Whether the transactions constituted a running account so as to treat all invoices, including the older ones, as a composite claim not barred by limitation. - HELD THAT: - The Tribunal recorded that no documentary evidence or agreement was placed on record to establish that the parties operated on a running account basis. In absence of foundational documentation evidencing running account payments, the claim that the last invoice cleansed prior invoices of limitation was unsubstantiated. The Tribunal therefore held that reliance on earlier precedents concerning running accounts was misplaced where no corroborative record exists, and the Corporate Debtor's categorical denial in reply to the demand notice reinforced that finding. [Paras 6]The running account contention failed for want of documentary foundation; the older invoices remain time barred.Threshold requirement under Section 4 of the IBC - IBC is not a money recovery forum - Whether the lone invoice dated 07.01.2017 (the only invoice not time barred) could, by itself, meet the statutory threshold to trigger CIRP and thereby save the Section 9 petition. - HELD THAT: - The Adjudicating Authority noted that all claims except one invoice dated 07.01.2017 were time barred. That solitary invoice carried a value which, as found by the Adjudicating Authority and reiterated by the Tribunal, did not satisfy the statutory threshold prescribed to initiate CIRP. The Tribunal emphasised the legislative intent that the Code is for insolvency resolution and is not to be used as a substitute for ordinary money recovery proceedings; consequently, a single small invoice which does not meet the threshold cannot be used to resurrect a petition otherwise defeated by limitation. [Paras 6, 9]The single recent invoice did not meet the statutory threshold to trigger CIRP and could not salvage the time barred petition.Final Conclusion: The appeal is dismissed. The Adjudicating Authority's finding that the Section 9 petition was time barred and that the running account plea was unsupported by documentary evidence is upheld; the Appellant remains at liberty to pursue other appropriate legal remedies to recover the claimed dues. Issues involved:The judgment involves the issue of dismissal of a Section 9 petition seeking to bring the Corporate Debtor under Corporate Insolvency Resolution Proceedings, based on the grounds of limitation and the applicability of the Insolvency and Bankruptcy Code 2016.Summary:Issue 1: Grounds of LimitationThe Appellant filed an appeal under Section 61 of the Insolvency and Bankruptcy Code 2016, challenging the dismissal of a Section 9 petition by the Adjudicating Authority. The dispute arose from unpaid goods supplied by the Appellant to the Corporate Debtor, leading to a demand notice under Section 8 of the IBC. The Adjudicating Authority dismissed the petition citing that the debts were old and barred by limitations, as no subsequent acknowledgment of liability was provided by the Corporate Debtor.Issue 2: Running Account PaymentThe Appellant argued that the business relationship between the parties was based on a running account, and thus, the entire dues should not be considered time-barred. However, the Adjudicating Authority found that most invoices were over three years old from the date of the Section 9 application, lacking any evidence of a running account. The Corporate Debtor denied any operational debt due and questioned the continued supply of materials despite pending payments.Issue 3: Legal Precedents and Legislative IntentThe Tribunal referred to legal precedents, including the Supreme Court decision in B.K. Educational Services Pvt. Ltd. Vs. Parag Gupta, emphasizing the application of the Limitation Act to IBC applications. It was highlighted that the IBC is not meant to revive time-barred debts, and the legislative intent is insolvency resolution rather than debt recovery. Consequently, the Tribunal upheld the Adjudicating Authority's decision, dismissing the appeal and allowing the Appellant to seek legal remedies through appropriate forums.ConclusionThe Tribunal, after considering the submissions and legal principles, found no merit in the appeal and upheld the Adjudicating Authority's order. The Appellant was granted the liberty to pursue legal actions for debt recovery but was not awarded costs. The judgment reinforced the legislative objective of the IBC for insolvency resolution and discouraged its misuse for mere money recovery purposes.