2025 (12) TMI 113 - AT - IBC

Section 9 IBC plea dismissed as time-barred; Section 8 notice not enough amid pre-existing disputes

NCLAT upheld the AA's dismissal of the operational creditor's Section 9 IBC application, holding the claim barred by limitation and vitiated by ... Dismissal of Section 9 application filed by the Appellant - rejection of Section 9 application primarily on the grounds of pre-existing dispute and bar of limitation. Whether the Section 9 petition was barred by limitation or not? - HELD THAT:- It is well settled that the trigger of initiation of CIRP by an Operational Creditor under IBC is default on the part of the Corporate Debtor wherein the default relates to actual non-payment by the Corporate Debtor when a debt has become due and payable. However, if the default had occurred over three years prior to the date of filing of the Section 9 application, the application would become time-barred. In the present facts of the case, it is found that the work orders relate to the period 2010 to 2019 and admittedly the last invoice raised was 02.01.2019 as placed at page 175 of APB, thus, the time of more than three years has clearly lapsed from the due date of these invoices in all these cases. Since the Section 9 petition had been filed in 2024, prima facie, the invoices are clearly hit by limitation. The Corporate Debtor has claimed that it has cleared the payment of Rs. 28.36 lakhs and that no other dues have been admitted by them except for Rs. 15.03 lakhs for which liability amount, the documents were not made available on time by the Operational Creditor. It is clear that the Corporate Debtor while accepting liability of Rs. 15.03 lakhs was focussed on specific invoices for which it was seeking relevant supporting documents. The Operational Creditor is required to furnish specific information relating to the acknowledgement of debt, in writing by the Corporate Debtor, within the initial period of three years from the date of default, only then, a fresh period of limitation commences and the application can be entertained if filed within this extended period - the Adjudicating Authority has not committed any infirmity in holding that the the period of limitation stood extended only in relation to the default arising from those specific and mapped invoices and that the Operational Creditor has failed to bring on record any acknowledgement or part payment in relation to the remaining pending invoices which therefore stood individually barred by limitation. Limitation period gets extended only when the debtor has acknowledged his liability in writing or by way of conduct by making any payment on a particular date and not when the creditor unilaterally issues a demand for payment on the debtor. We outrightly reject the contention of the Appellant that issue of Section 8 Demand Notice in Form-3 is sufficient to extend the period of limitation - When the Corporate Debtor has clearly denied any outstanding liability owed by them to the Operational Creditor in their emails and also not unequivocally admitted the financial record in the IU, it would be grossly erroneous to hold that the Corporate Debtor had expressed their intention to admit a jural relationship of debtor and creditor in respect of any subsisting liability - to answer the question whether the claim was barred by limitation, the question is answered in the affirmative. Pre-existing dispute or not - HELD THAT:- There is discernible pre- existing dispute writ large in the facts of this case - there are no reason to take a different view in the matter from that of the Adjudicating Authority in rejecting the Section 9 application on valid grounds of pre-existing disputes. There are no reasons to interfere with the impugned order - appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation under the Limitation Act, 1963. 1.2 Whether part payment made on 18.02.2021 and subsequent e-mails dated 11.08.2022 and 22.12.2022 constituted acknowledgment of liability so as to extend or revive limitation under Sections 18 and 19 of the Limitation Act, 1963. 1.3 Whether the operational transactions between the parties constituted a 'running account' so that limitation did not run invoice-wise but on a consolidated basis. 1.4 Whether registration and 'deemed authentication' of financial information/record of default with an Information Utility and/or issuance of a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 could by themselves give rise to a fresh period of limitation. 1.5 Whether there existed a 'pre-existing dispute' regarding the operational debt so as to render the Section 9 application not maintainable. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Limitation of the Section 9 application Legal framework: 2.1.1 The Court applied the Limitation Act, 1963 to proceedings under the Insolvency and Bankruptcy Code, 2016, and adverted to the settled position that Section 18 of the Limitation Act applies to IBC proceedings, as recognized in the judgment of the Supreme Court in Dena Bank v. C. Shivakumar Reddy. It reiterated that limitation for a Section 9 application is three years from the date of default, extendable only upon a valid acknowledgment or part payment within the prescribed period. Interpretation and reasoning: 2.1.2 The work orders and invoices undisputedly pertained to the period 2010-2019, with the last invoice dated 02.01.2019. The Section 9 application was filed on 29.08.2024. 2.1.3 Even on the Operational Creditor's own showing, if the last relevant event for extending limitation is taken as the part payment made on 18.02.2021, the three-year limitation would expire on 17.02.2024, whereas the Section 9 application was instituted on 29.08.2024, beyond this period. 2.1.4 The Court held that, prima facie, all invoices were hit by limitation, and even if the limitation period were computed afresh from 18.02.2021, the Section 9 application remained time-barred. Conclusions: 2.1.5 The Court concluded that the Section 9 application was barred by limitation and therefore not maintainable. 2.2 Effect of part payment and e-mails dated 11.08.2022 and 22.12.2022 on limitation (acknowledgment under Sections 18 and 19 of the Limitation Act) Legal framework: 2.2.1 The Court reiterated that Section 18 of the Limitation Act is attracted when there is an acknowledgment of liability in writing and signed by the debtor, in respect of the very liability for which action is initiated under the IBC, and that such acknowledgment must be made before expiry of the prescribed limitation period (including any extended period). Part payment can similarly extend limitation under Section 19 if referable to the specific debt. Interpretation and reasoning: 2.2.2 The Operational Creditor relied on (i) part payment of Rs. 7,81,313/- on 18.02.2021, and (ii) e-mails dated 11.08.2022 and 22.12.2022, claiming they amounted to acknowledgment of the entire outstanding operational debt and revived limitation for all invoices from 2010-2019. 2.2.3 The Court observed that the invoices related to multiple distinct work sites, and the part payment made on 18.02.2021 was against certain specific, identified invoices. Such part payment could extend limitation only for those mapped invoices and not for all other unrelated invoices. 2.2.4 On examining the e-mails dated 11.08.2022 and 22.12.2022, the Court found that the Corporate Debtor had taken the position that Rs. 28.36 lakhs had already been paid and adjusted; that only Rs. 15.03 lakhs could be considered, subject to submission of compliance documents; and that the Corporate Debtor was proceeding on the assumption that no claims existed beyond Rs. 15.03 lakhs. 2.2.5 The Court held that these communications reflected limited, conditional acknowledgment, focused only on specific invoices aggregating Rs. 15.03 lakhs and coupled with insistence on documentation. They did not amount to a clear or unequivocal acknowledgment of liability in respect of all outstanding invoices. 2.2.6 The Court also clarified that the mere existence of a jural relationship of debtor and creditor does not, by itself, extend limitation; there must be a clear acknowledgment or admission of liability in respect of the specific debt. Conclusions: 2.2.7 The part payment dated 18.02.2021 and the e-mails dated 11.08.2022 and 22.12.2022 could, at best, extend limitation only for certain specific mapped invoices and not for the entirety of the outstanding operational debt. 2.2.8 For the remaining invoices, there was no valid acknowledgment or part payment within the limitation period; those invoices therefore remained individually time-barred. 2.2.9 Even computing limitation from 18.02.2021, the Section 9 application filed on 29.08.2024 was beyond the three-year period and hence barred. 2.3 Whether the transactions constituted a 'running account' affecting computation of limitation Interpretation and reasoning: 2.3.1 The Operational Creditor contended that the parties operated on a running account basis and that the invoices from 2010-2019 constituted a continuous course of dealing, so that limitation could not be considered invoice-wise and was extended for all invoices by the last part payment and subsequent correspondence. 2.3.2 The Court examined the invoices placed on record and noted that they related to multiple distinct and unrelated work sites such as Rashtrapati Bhawan, MGF Mega City, IIT Delhi, IRCA Building, TATA Power, Jubilant Ltd., Talkatora Stadium, etc. 2.3.3 There was no single overarching or common contract or any material on record showing that all these invoices were part of one continuous, inter-connected running account. Each invoice arose from distinct work orders and different sites, with no demonstrated overriding nexus. 2.3.4 The Court accepted the Corporate Debtor's contention that payments could be mapped to specific invoices and that default in respect of each invoice constituted an independent cause of action with its own period of limitation. 2.3.5 It therefore rejected the plea that a running account existed or that a continuing cause of action arose covering all invoices. Conclusions: 2.3.6 The Court held that the transactions did not constitute a running account. Each invoice was an independent cause of action with its own limitation period. 2.3.7 Part payments and acknowledgments related to particular invoices could not revive or extend limitation for other, separate invoices. 2.4 Effect of Information Utility records and Section 8 demand notice on limitation Legal framework: 2.4.1 The Court referred to Regulations 20 and 21 of the Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017, governing acceptance of information and authentication of default by Information Utilities, including the status categories of 'Authenticated', 'Disputed', and 'Deemed to be Authenticated'. Interpretation and reasoning: 2.4.2 The Operational Creditor argued that (i) registration of financial information/debt on the Information Utility (NeSL) in 2023, and (ii) the Record of Default showing the debt as 'Deemed to be Authenticated', amounted to an acknowledgment by the Corporate Debtor, thereby giving rise to a fresh period of limitation. 2.4.3 The Court found that the Corporate Debtor had not confirmed or admitted the information lodged with the IU; the status of 'Deemed to be Authenticated' arose due to non-response to reminders, not due to a positive acknowledgment. 2.4.4 The Court held that Information Utilities serve as neutral repositories of financial information to facilitate insolvency proceedings and that the act of submission or storage of such information by the creditor, or its 'deemed authentication' due to debtor's non-response, does not amount to a jural act of acknowledgment under Section 18 of the Limitation Act. 2.4.5 It observed that extension of limitation depends on the debtor's act of acknowledging liability, not on the creditor's unilateral act of filing information with an IU. 2.4.6 As to the issuance of a demand notice under Section 8 on 17.02.2024, the Court held that a unilateral demand by the creditor cannot extend the period of limitation. Limitation can be extended only by acknowledgment of liability or part payment by the debtor, not by a notice issued by the creditor. Conclusions: 2.4.7 Registration of debt with an Information Utility and the status of 'Deemed to be Authenticated' do not, by themselves, constitute acknowledgment of liability by the debtor and do not restart or extend limitation. 2.4.8 Issuance of a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 does not give rise to a fresh period of limitation. 2.4.9 Accordingly, neither the IU record nor the demand notice could salvage the otherwise time-barred Section 9 application. 2.5 Existence of pre-existing dispute Interpretation and reasoning: 2.5.1 Although the Court had already found the Section 9 application to be barred by limitation, it proceeded to examine the existence of a pre-existing dispute, as this ground had been considered by the Adjudicating Authority and challenged in appeal. 2.5.2 The Operational Creditor argued that disputes had not been raised earlier, that the Corporate Debtor had utilized its services but withheld legitimate dues on frivolous grounds such as alleged non-availability of documents, and that registration of debt with the IU and TDS entries supported the absence of genuine dispute. 2.5.3 The Court noted that, in e-mails dated 11.08.2022 and 22.12.2022, the Corporate Debtor had clearly raised issues of non-submission of compliance documents (attendance sheets, wage registers, PF/ESIC challans, etc.), raised objections regarding certain invoices, and categorically restricted its admitted liability, if any, to Rs. 15.03 lakhs subject to documentation. 2.5.4 These communications, being prior to the Section 8 demand notice dated 17.02.2024, were found to be anterior and thus capable of constituting 'pre-existing disputes'. 2.5.5 The Court further relied on the Corporate Debtor's detailed reply to the demand notice, in which it: (i) denied the veracity and certification of most invoices; (ii) asserted non-compliance with purchase order conditions regarding supporting documents; (iii) stated that compliance documents had been provided only for Rs. 15.03 lakhs; (iv) characterized the larger claim of Rs. 1,20,46,835/- as false, frivolous, and time-barred; and (v) reiterated ongoing disputes over work certification, amounts, and documentation. 2.5.6 The Court noted that the Operational Creditor had not effectively controverted the Corporate Debtor's assertions that repeated reminders had been issued for compliance documents over a prolonged period and that disputes had been raised well before the demand notice. 2.5.7 It agreed with the Adjudicating Authority's observation that the e-mail chain reflected ongoing disputes over work certification, quantum, and supporting documentation, and that such disputes were genuine and not a mere afterthought or moonshine. Conclusions: 2.5.8 The Court held that there was a clear, discernible pre-existing dispute between the parties regarding the operational debt prior to the issuance of the Section 8 demand notice. 2.5.9 On this independent ground also, apart from limitation, the rejection of the Section 9 application by the Adjudicating Authority was justified. 2.5.10 The appeal was dismissed, and the impugned order was upheld, with no order as to costs.