Section 10A suspension does not cover pre-existing invoice defaults; later cheque dishonour cannot shift the date of default.

Operational debt under invoice-based supply transactions became due within 30 days of the invoices, so the defaults had occurred before 25.03.2020 and fell outside the section 10A suspension under the Insolvency and Bankruptcy Code. The later issuance and dishonour of cheques did not shift the original date of default, because cheque dishonour did not change the matured invoice liability or create a fresh default date. A claimed running account was also not supported by material showing settlement, and the pre-25.03.2020 default basis of the section 9 insolvency application remained unchanged.

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Issues: (i) Whether the defaults arising from invoice-based supply transactions fell within the suspension period under section 10A of the Insolvency and Bankruptcy Code, 2016. (ii) Whether the issuance and subsequent dishonour of cheques shifted the date of default and established a running account so as to take the case outside the pre-25.03.2020 default period.

Issue (i): Whether the defaults arising from invoice-based supply transactions fell within the suspension period under section 10A of the Insolvency and Bankruptcy Code, 2016.

Analysis: The operational debt arose from invoices issued between 20.04.2019 and 19.09.2019, each carrying a stipulation that payment would become due within 30 days. On that basis, the liability became due and payable on or before 19.10.2019. Section 10A bars initiation of corporate insolvency resolution process only for defaults arising on or after 25.03.2020. Since the defaults in question had already occurred before that date, the suspension under section 10A was held inapplicable. The existence of debt was also not disputed.

Conclusion: The defaults did not fall within the section 10A suspension period and the objection based on section 10A failed.

Issue (ii): Whether the issuance and subsequent dishonour of cheques shifted the date of default and established a running account so as to take the case outside the pre-25.03.2020 default period.

Analysis: The dishonour of cheques issued towards outstanding liability did not alter the original due dates of the invoices. The liability had already matured before 25.03.2020, and the dishonour did not defer the date of default. No material was shown to establish a settlement between the parties, and the asserted running account did not change the fact that the invoice amounts had become due within the earlier period. The application under section 9 was therefore founded on the pre-25.03.2020 default and not on the cheque dishonour as an independent trigger.

Conclusion: The cheque dishonour did not shift the date of default and the running account contention was rejected.

Final Conclusion: The appeal was found to be without merit because the insolvency application was based on defaults that had occurred before the statutory suspension period, leaving the admission of the section 9 proceeding undisturbed.

Ratio Decidendi: For the purpose of section 10A, the relevant date is the date when the operational debt first became due and payable; subsequent dishonour of cheques issued towards the same liability does not postpone that date or bring an earlier default within the suspension window.

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