NCLAT upholds rejection of Section 9 IBC application citing limitation period and pre-existing dispute

The NCLAT dismissed an appeal challenging rejection of a Section 9 IBC application. The tribunal held that ten invoices were time-barred as the limitation period expired on 24.07.2019 while the application was filed on 04.03.2020, with the date of default being 25.07.2016. For the eleventh invoice, the tribunal found a pre-existing dispute existed before the demand notice was issued, applying the Innoventive judgment ratio. The operational creditor had misrepresented outstanding amounts despite receiving payments, and the corporate debtor had disputed the claimed amounts in response to the Section 8 demand notice. The adjudicating authority correctly rejected the application on grounds of limitation and pre-existing dispute.

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Issues Involved:
1. Limitation of claims under Section 9 application.
2. Pre-existing dispute regarding the 11th invoice.
3. Alleged payment of Rs. 5.96 crores to a third party.

Detailed Analysis:

1. Limitation of Claims Under Section 9 Application:
The primary issue was whether the claims made by the Operational Creditor were barred by limitation. The Operational Creditor had raised 11 invoices between 25.07.2016 and 02.02.2017, and the date of default was mentioned as 25.07.2016. The Section 9 application was filed on 04.03.2020, which clearly exceeded the three-year limitation period prescribed by the Limitation Act. The Adjudicating Authority noted that the account between the parties was not a running account but based on invoice-to-invoice payments. Consequently, the claims related to the first ten invoices were held to be time-barred. The Tribunal agreed with this assessment, stating, "the limitation period of filing of Section 9 application clearly expired on 24.07.2019 while the Section 9 application was filed on 04.03.2020."

2. Pre-existing Dispute Regarding the 11th Invoice:
The second issue was whether there was a pre-existing dispute concerning the 11th invoice dated 30.01.2019. The Corporate Debtor argued that the invoice was for 25 MT of copper cathodes, but only 14 MT was delivered, and 95% of the payment for the delivered quantity had already been made. The Adjudicating Authority found that there was indeed a pre-existing dispute, as the Corporate Debtor had raised issues about the incomplete delivery before the issuance of the demand notice. The Tribunal upheld this finding, stating, "the Adjudicating Authority rightly appreciated the existence of a pre-existing dispute in respect of invoice no. 77 and in rejecting the Section 9 application."

3. Alleged Payment of Rs. 5.96 Crores to a Third Party:
The Operational Creditor claimed that Rs. 5.96 crores remained unpaid. However, the Corporate Debtor contended that this amount had been transferred to TDT Copper Ltd. at the request of the Operational Creditor. The Adjudicating Authority accepted this argument, noting that the letter dated 13.06.2019 indicated mutual consent for the transfer. The Tribunal further noted that the Appellant had suppressed material records, including a ledger statement showing the payment of Rs. 5.96 crores. The Tribunal stated, "This ledger statement persuasively removes all ambiguity from our minds that the amount of Rs. 5.96 cr claimed by the Operational Creditor as outstanding is bereft of any foundational basis."

Conclusion:
The Tribunal dismissed the appeal, affirming the Adjudicating Authority's decision to reject the Section 9 application. It concluded that the claims related to the first ten invoices were time-barred, and there was a pre-existing dispute concerning the 11th invoice. Additionally, the Tribunal found that the Rs. 5.96 crores had been validly transferred to TDT Copper Ltd., and thus no debt was due and payable. The judgment stated, "The Appeal lacks merit and stands dismissed. No costs."

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