2026 (1) TMI 397 - AT - IBC

Invoice-based operational debt u/s 9 IBC and Section 10A bar-creditor blocked from adding invoices; dismissal upheld.

The dominant issue was whether a Section 9 IBC application could be sustained by enlarging the set of invoices asserted to fall outside the Section 10A ... Scope of adjudication under Section 9 - supply of chemicals and raw materials - default exceeds the statutory threshold outlined u/s 4 - no grounds of pre-existing dispute raised by the Corporate Debtor - Whether the Adjudicating Authority had erred in rejecting the Section 9 application after noticing that the Corporate Debtor had agreed to discharge their outstanding liabilities of Rs. 1.65 Cr. arising out of 7 invoices which fell outside the Section 10-A period. - HELD THAT:- Since the Corporate Debtor did not make any offer to clear the outstanding liability arising out of these 2 invoices, the Section 9 application could not have been dismissed by the Adjudicating Authority. It was also asserted that when the matter had been considered by this Tribunal on 09.07.2024, this Tribunal had not looked into the number of invoices which fell beyond the Section 10-A period but had only looked into whether the invoices relied upon by the Operational Creditor crossed the threshold of Rs. 1 Cr. for the purpose of maintaining the Section 9 application. Since no finding had been returned by this Tribunal as such on individual invoices, there is no restriction operating on the Operational Creditor to identify the final set of invoices beyond the 10-A period basis which the operational debt claim could be quantified. Hence, the Operational Creditor was well within its rights to claim full dues and merely because full payment was sought by the Operational Creditor, it cannot be inferred that the Section 9 petition was being used as a recovery tool. When the matter was remanded back to the Adjudicating Authority by this Tribunal on 09.07.2024, the Operational Creditor had not challenged the categorization of the invoices in Table-A relating to invoices barred by Section 10-A and Table-B relating to invoices unaffected by Section 10-A. Thus, the Operational Creditor having expressly acknowledged at the time of filing Section 9 application that only 7 invoices amounting Rs. 1.65 Cr. fell outside the protective shield of Section 10-A, the Operational Creditor cannot be seen to claim subsequently that there were other invoices apart from the aforementioned 7 invoices which also fell outside the ambit of Section 10-A. The present claim of adding 2 more invoices to the earlier list of 7 invoices as invoices falling outside the Section 10-A period amounts to shifting the goal-post which cannot be accepted. This amounts to be an attempt to improving their own case to inflate the quantum of default and arm-twist the Corporate Debtor into parting with more than what was envisaged in the original Section 9 application. We are of the firm view that the Operational Creditor cannot now canvass for reopening for segregation of invoices afresh from what was originally depicted by them while filing the Section 9 application. Once the Operational Creditor had on their own volition admitted the operational debt to be Rs. 1.65 Cr. qua 7 invoices not hit by Section 10-A, it cannot alter, modify, expand or shrink the list of invoices originally set up by themselves in Table-A and Table- B which had been set out by them in their Section 9 application. We have no reasons to disagree with the Adjudicating Authority that it would not be in consonance with the objective of IBC to drag the Corporate Debtor into insolvency. The objective of IBC is for the revival, resolution and rejuvenation of a Corporate Debtor from financial distress rather than leverage the provisions of IBC as a coercive recovery tool to abandon the Corporate Debtor to face the peril of corporate death and extinction. We would like to add that the protective shield of Section 10-A does not extinguish or wipe out the liability but only renders it unenforceable in Section 7 and 9 proceedings. The Operational Creditor can always enforce the liability arising out of invoices falling within the Section 10- A period by taking recourse to civil remedies and not by way of Section 9 proceedings. We are in agreement with the impugned order rejecting the Section 9 application in view of the fact that the amount of Rs. 1.65 Cr. stands deposited by the Corporate Debtor by FDR with NCLT Registry for making the same available to the Appellant towards discharge of operational debt in terms of Table-B of the invoices alongwith liberty to the Appellant to avail other remedies in accordance with law. We do not find any good ground to interfere with the above order of the Adjudicating Authority. There is no merit in the Appeal. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether, for deciding a Section 9 application post-remand, the Operational Creditor could re-segregate and expand the set of invoices claimed to fall outside the protective ambit of Section 10-A, contrary to the invoice categorisation and quantum expressly pleaded in its own Section 9 application and reflected in earlier orders. (ii) Whether rejection of the Section 9 application was justified where the Corporate Debtor tendered (and deposited with the Tribunal Registry) the entire operational debt amount that was pleaded as enforceable (i.e., outside Section 10-A), and the Operational Creditor refused to accept it while insisting on a higher amount by revising the enforceable invoice set. (iii) Whether liabilities covered by Section 10-A were extinguished, or merely rendered unenforceable in Section 7/9 proceedings, and what remedy remained available to the Operational Creditor for such invoices. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Permissibility of altering the pleaded invoice segregation/quantum vis-à-vis Section 10-A Legal framework (as discussed): The Court proceeded on the premise that Section 10-A creates a 'protective shield' in respect of certain defaults, making them not actionable under Section 7 and Section 9 proceedings during the barred period, while invoices outside that ambit could sustain a Section 9 claim. Interpretation and reasoning: The Court found that the Operational Creditor itself had filed the Section 9 application relying on 60 invoices split into two tables: 53 invoices in one table treated as hit by Section 10-A and 7 invoices in another table treated as outside Section 10-A, aggregating to Rs. 1.65 Cr for the enforceable portion. This exact segregation was reflected in the Adjudicating Authority's earlier order and in the Tribunal's remand order. The remand did not interfere with, nor reopen, the pleaded invoice list or classification. After remand, the Operational Creditor had not challenged this categorisation, and only later sought to add two invoices from the earlier 'barred' table by asserting that, due to credit terms, their payable dates fell beyond the Section 10-A period. The Court held this to be an impermissible contradiction of its own pleadings, amounting to 'shifting the goal-post' and an attempt to 'improve' the case by inflating the quantum of default to pressure the Corporate Debtor. Conclusion: The Operational Creditor was not permitted to alter, modify, expand, or re-segregate the invoices beyond what it had originally pleaded in the Section 9 application; the enforceable operational debt, for Section 9 purposes in this case, remained confined to the 7 invoices aggregating to Rs. 1.65 Cr as originally admitted by it. Issue (ii): Effect of tender/deposit of the admitted enforceable amount and refusal by the Operational Creditor-misuse of Section 9 as recovery tool Interpretation and reasoning: The Court noted that the Corporate Debtor offered to pay the entire Rs. 1.65 Cr corresponding to the 7 invoices undisputedly outside Section 10-A and, pursuant to directions, deposited the amount in an interest-bearing fixed deposit with the Tribunal Registry. This was treated as demonstrating bona fides to discharge the enforceable liability and also as indicative of financial solvency. The Operational Creditor's refusal to accept the amount, coupled with its insistence on a higher figure premised on an impermissible reclassification of invoices, was held to show that the insolvency process was being invoked as a 'coercive recovery tool' rather than as a mechanism aligned with the object of the IBC. In these circumstances, the Court agreed that it would not be in consonance with IBC objectives to 'drag' the Corporate Debtor into insolvency when the enforceable portion stood fully tendered/deposited. Conclusion: The rejection of the Section 9 application was upheld because the Corporate Debtor had deposited the entire enforceable amount (as per the Operational Creditor's own pleaded segregation), and the Operational Creditor's refusal to accept it, while seeking to enlarge the enforceable claim, amounted to misuse of the insolvency process. Issue (iii): Nature of Section 10-A protection and availability of alternate remedies Interpretation and reasoning: The Court expressly clarified that the Section 10-A 'protective shield' does not extinguish or wipe out the underlying liability; it only renders such liability unenforceable in Section 7 and Section 9 proceedings. Consequently, claims arising from invoices falling within the Section 10-A period could not be pursued through Section 9 but could be pursued through civil remedies. Conclusion: Liabilities within the Section 10-A period were held not to be extinguished, but only not actionable under Section 9; the Operational Creditor retained liberty to pursue other remedies in accordance with law for such amounts.