2024 (6) TMI 960 - Tri - Insolvency and Bankruptcy

Operational creditor's Section 9 application dismissed as time-barred, invoices from 2015-2017 filed in 2021

The NCLT Mumbai dismissed an operational creditor's application under Section 9 of IBC for initiating CIRP against the corporate debtor. The tribunal ... Proof of debt and default - operational debt - maintainability under Section 9 of the Insolvency and Bankruptcy Code - limitation - initiation of corporate insolvency resolution process - reliance on Section 8 demand notice - compound interest claimed under the MSMED ActProof of debt and default - operational debt - Section 9 maintainability - reliance on Section 8 demand notice - The Operational Creditor failed to prove existence of any operational debt and default sufficient to maintain a Section 9 application. - HELD THAT: - The Adjudicating Authority examined the documents produced by the Operational Creditor and found that the only material on record were the OC's internal computation (Annexure-H), a particulars list of invoices (Annexure-C) and a demand notice dated 15.11.2019. No original or authenticated invoices, no ledger or annual financial statements and no purchase orders acknowledged by the Corporate Debtor were placed on record to establish the alleged debt. The bank statement relied upon did not, by itself, establish that amounts received related to the claimed invoices. The Tribunal applied the principle that a Section 9 application requires strict proof of debt and default and noted the authority relied upon by it, M/s. SFO Technologies Pvt. Ltd. , as guiding that absence of strict proof defeats maintainability. In view of these evidentiary deficiencies and the serious consequences of initiating CIRP, the Tribunal held that the OC had not discharged the burden of proving an operational debt and default so as to sustain the Section 9 petition. [Paras 4]Application rejected for failure to prove operational debt and default; maintainability under Section 9 not established.Limitation - date of default - invoices as evidence - The application was time-barred because the invoices on which the claim was founded dated from 2015-2017 and the Section 9 application was filed beyond the three-year limitation period from the alleged dates of default. - HELD THAT: - On scrutiny, the Tribunal found that the invoices asserted in the computation were dated between 10.05.2015 and 31.12.2017, whereas the petition was filed on 20.02.2021. In the absence of any evidence of acknowledgment of debt by the Corporate Debtor or invoices establishing a later date of default, the three-year limitation period ran from the dates of the alleged defaults reflected in the invoices. The Tribunal therefore concluded that the law of limitation applied and that the petition was barred by limitation. [Paras 4]Limitation held to be attracted; the Section 9 application is time-barred.Final Conclusion: The Company Petition under Section 9 is rejected because the Operational Creditor failed to produce strict proof of operational debt and default and the claim was held to be time-barred; no opinion is expressed on the merits and the OC's rights outside this proceeding remain preserved. Issues Involved:The issues involved in this case are the initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) based on unpaid invoices and default in payment by the Corporate Debtor (CD) towards the Operational Creditor (OC).Contentions of Operational Creditor (OC):The OC, a Kota-based manufacturer of chemicals, filed a Company Petition under Section 9 of the IBC against the CD for non-payment of dues amounting to Rs. 2,33,10,961. The OC submitted that the CD failed to settle outstanding dues for raw materials supplied between 2015 and 2019, despite receiving invoices and a demand notice. The OC claimed interest on the unpaid amount as per the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act).Contentions of Corporate Debtor (CD):The CD initially failed to appear and file a reply, leading to the forfeiture of its right to respond. Subsequently, attempts were made to settle the matter, but no agreement was reached. The CD later filed a reply online, seeking to condone the delay, citing unfamiliarity with the online filing system. However, the Tribunal did not consider the late reply and proceeded to evaluate the case based on submissions from both parties.Analysis and Findings:Upon reviewing the documents and arguments presented by both parties, the Tribunal found that the OC failed to provide authenticated invoices or sufficient evidence of debt and default by the CD. The lack of concrete proof, such as ledger statements or financial records, led the Tribunal to conclude that the OC did not meet the requirements for initiating CIRP under Section 9 of the IBC. Additionally, the Tribunal noted that the application was filed beyond the limitation period, as the alleged invoices dated back to 2015-2019.Conclusion:The Tribunal ruled against the OC, rejecting the application for initiating CIRP against the CD. It emphasized the importance of strict proof of debt and default in such cases, highlighting the serious implications of initiating CIRP without sufficient evidence. The decision did not prejudice the OC's rights to seek legal recourse through other forums. No costs were awarded in this matter.