AI Drafter 
TaxTMI 
TaxTMI 
2021 (3) TMI 767
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....ibunal), Bengaluru Bench, by its Impugned Order dated 20.12.2018, rejected the Application on the ground of 'Pre-Existing Dispute' and 'Claims being time barred'. Brief Background: 2. The Adjudicating Authority while dismissing the Application noted as follows; "13. The Hon'ble Supreme Court in the case of B.K. Educational Services Pvt. Ltd. Vs. Parag Gupta and Associates1, has inter alia held that provisions of Limitation Act will apply to proceedings or appeals before NCLT/NCLAT. Section 238A of the Code make provisions of Limitation Act would apply to proceedings under the Code. As stated supra, debt in question fell on various dates on and after October, 2011 and there is no explanation for the laches and delay on the part of the petitioner. Moreover, as per the terms and conditions as stipulated in the Master License Agreement in question, the debt in question itself is subject to various compliances as stated supra. The Hon'ble Supreme Court of India, in a recent case, in Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited2, has categorically laid down that IBC is not intended to be substitute to a recovery forum. It is also laid do....
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....n 8 notice, the Respondent (Corporate Debtor) intimated that there were defective services provided by the Appellant. It is a settled law that if any dispute is raised prior to the issuance of the invoices or Demand Notice u/s 8(1) of the I&B Code with regard to quality of service or goods or pendency of the suit or arbitration, in such case one may take the plea that there is an 'existence of dispute' but if any dispute is raised after issuance of Demand Notice u/s 8(1) that cannot be termed to be a 'pre-existing dispute'. We find that the Adjudicating Authority has failed to notice the aforesaid issue and observed that 'debt' in question is not only serious dispute but also barred by limitation and laches and not discussed under which provision the 'Master Service Agreement' with 'Sri Gowtham Academy of General and Technical Education' was consequentially issued on 8th February, 2016 and the reply to the Demand Notice was issued on 8th August, 2017. For the reasons aforesaid, we set aside the impugned order dated 20th December, 2018 and remit the case to the Adjudicating Authority (National Company Law Tribunal), Bengaluru Bench for admitting the applic....
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....une 30, 2017 for total amount of Rs. 2,39,85,521.35 which remained unpaid. Submissions of the Operational Creditor: 6. Learned Counsel appearing for the 'Operational Creditor' contended that 187 invoices were raised for the Digital Classroom Solution Services provided for the period between 12.03.2011 and 30.06.2017; that the 'Corporate Debtor' has sent a letter dated 11.09.2015 pertaining to an audit confirmation wherein there was an express admission for an amount of Rs. 2,46,61,404, 'due and payable' to the 'Corporate Debtor'; that an email dated 27.04.2016 was also addressed to the Corporate Debtor wherein the liability to pay the dues was admitted; that an Addendum Agreement dated 01.07.2016 was entered into between the parties wherein an amount of Rs. 2.69/- Crores was once again confirmed as payable by the 'Corporate Debtor'; that the amount payable was intentionally delayed and never paid despite repeated requests and hence a Demand Notice dated 08.08.2017 under Section 8(1) of the 'IBC' was issued which was received by the 'Corporate Debtor' on 12.08.2017, but was not replied to within the statutory period of 10 days; that the Corporate Debtor sent a belated Reply da....
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....quisite support with request to the supplies provided by them as they were faulty; that the invoices were sent to SGAGTE and not to the 'Corporate Debtor'; that there was a total failure of systems for 18 days from 08.10.2013 to 25.10.2013; that there was a breach of clauses 6.1 and 6.8 of the Master Agreement which show the rights and obligations of the 'Operational Creditor'; that the matter at hand is only a suit for recovery camouflaged as an Application under Section 9 of 'IBC'; that the 'Operational Creditor' was obligated to spend Rs. 25/- Lakhs in Joint Media Advertising which was never done; that the 'Telugu content' and the 'Training Sessions' promised by the 'Operational Creditor' was never provided and these breaches amount to 'Pre-Existing Disputes' and hence the Learned Adjudicating Authority had rightly relied on the ratio in 'Mobilox Innovations Private Limited' V/s. 'Kirusa Software Private Limited', (2018) 1 SCC 353 and rejected the Application. 10. Learned Counsel for the 'Corporate Debtor' drew our attention to the invoices (on pages 399 to 406, Volume II) in which the unpaid debt is reflected from 12.03.2011 onwards. It is submitted that the last invoice is ....
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....ly laid down by the Hon'ble Supreme Court in a catena of Judgements. In 'Vashdeo R. Bhojwani' V/s. 'Abhyudaya Co-operative Bank Limited and Another' - (2019) 9 SCC 158, the Hon'ble Supreme Court referring to 'BK Educational Services (P) Ltd.' (2019) 11 SCC 633 observed; "3. Having heard the learned counsel for both parties, we are of the view that this is a case covered by our recent judgment in B.K. Educational Services (P) Ltd. v. Parag Gupta and Associates, para 42 of which reads as follows: "42. It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. "The right to sue", therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application." Dealing with Section 23 of the Limitation Act, 1963, the Hon'ble Supreme Court ....
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....ould not have been to give a new lease of life to debts which are already time-barred. 7. This being the case, we fail to see how this para could possibly help the case of the respondents. Further, it is not for us to interpret, commercially or otherwise, articles of the Limitation Act when it is clear that a particular article gets attracted. It is well settled that there is no equity about limitation - judgments have stated that often time periods provided by the Limitation Act can be arbitrary in nature. 8. This being the case, the appeal is allowed and the judgments of the NCLT and NCLAT are set aside." (Emphasis in bold supplied) "29. Close on the heels of Gaurav Hargovindbhai Dave (supra), this Court dealt with similar issue yet again in the case of Sagar Sharma (supra), decided on 30.09.2019. Therein, apart from disapproving the proposition that the date of commencement of the Code could be the starting point of limitation (as noticed hereinabove), this Court again pointed out the fallacy in applying the period of limitation related to mortgage liability to the application under Section 7 of the Code and said, - "2.....However, we find in ....
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....pplication." (Emphasis Supplied) 17. In the aforenoted Judgement it is clearly observed that the period of limitation for an Application seeking initiation of CIRP under Section 7 of the Code is governed by Article 137 of the Limitation Act and is, therefore three years from the date when the 'Right to Apply' accrues. In the instant case, the material on record and the admitted invoices, (pages 399 to 406 of Volume II) evidence that the first unpaid debt is dated 12.03.2011. Page 402 is relevant as the Learned Counsel for the Appellant sought to rely on the debt for the period from 02.04.2015 upto 30.06.2017 (page 406). For better understanding of the case, the same is reproduced as hereunder; Bill No. Date Milestone Total Amount Billed (Inclusive of Tax) Status Balance O/s. 2012-2013/HYD/TN/67667 5/7/2012 5/7/2012 123,550.00 UnPaid 18,051,540.00 2012-2013/HYD/TN/68306 5/14/2012 5/14/2012 123,550.00 UnPaid 18,175,090.00 2012-2013/HYD/TN/38669 2/6/2012 2/6/2012 68,300.00 UnPaid 18,243,390.00 2012-2013/HYD/TN/39221 2/14/2012 2/14/2012 85,000.00 UnPaid 18,428,390.00 2012-2013/HYD/T....
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....1 for providing digital classroom solution at various branches. The date from which such debt fell due: March 12, 2011 2. Amount claimed to be in default and the date on which the default occurred Rs. 2,39,85,521.35/- (Rupees Two Crores Thirty Nine Lakhs Eighty Five Thousand Five Hundred Twenty one and Thirty Five Paise only), occurred on various dated staring from March 12, 2011 3. Particulars of security held, if any, the date of its creation, its estimated value as per Next Education India Pvt. Ltd. NIL Attach a copy of a certificate of registration of charge issued by the registrar of companies Not Applicable 4. Details of retention of file arrangements in respect of goods to which the operational debt refers Not Applicable 5. Record of default with the information utility Not Applicable 6. Provision of law contract or other document under which debt has become due Under Section 8(10 of the Insolvency and Bankruptcy Code, 2016 7. List of documents attached to this application in order to prove the existence of operational debt and the amount in default As described in Table 2 At this ju....
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....en by the corporate debtor relating to a dispute of the unpaid operational debt; (c) a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt 3[by the corporate debtor, if available;] 4[(d) a copy of any record with information utility confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available; and (e) any other proof confirming that there is no payment of an unpaid operational debt by the corporate debtor or such other information, as may be prescribed.] (4) An operational creditor initiating a corporate insolvency resolution process under this section, may propose a resolution professional to act as an interim resolution professional. (5) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order- (i) admit the application and communicate such decision to the operational creditor and the corporate debtor if,- (a) the application made under sub-section (2) is complete; (b) there is no rep....
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....ding payment of the amount involved in the default is to be delivered by way of a Demand Notice to the 'Operational Creditor'. Form III gives the details of the invoices. In the instant case, the 'Operational Creditor' has given the details of invoices from (pages 399 to 406 of Volume II) and has also crystallized the amount at Rs. 2,39,85,521.35/-, which is unpaid from 2011. Therefore, the argument of the Learned Counsel for the 'Operational Creditor' that the period should be confined only from 2015 to 2017 cannot be sustained. The Tribunal cannot confine to one or other invoice if the Applicant has relied on all the invoices to arrive at the amount of Rs. 2,39,85,521.35/- in the Demand Notice under Section 8. We are of the view that the Tribunal does not have Jurisdiction in these Insolvency Proceedings to cut-short the invoices which would cause recurring dates of cause of action as it is not a suit for recovery. 22. To reiterate, once the default takes place, the Right to file Application accrues as provided under Article 137 of the Limitation Act, 1963. In the instant case, we are of the considered view that the 'Right to Application' first accrued within three years of 12....
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....resh lease of life to time barred debts, we are of the considered view that the ratio of the Hon'ble Supreme Court in 'Babulal Vardharji Gurjar' (Supra) is squarely applicable to the facts of this case. Hence, we hold that the Application filed under Section 9 is barred by limitation. Whether there is any Pre-Existing Dispute between the Parties 27. Now we address ourselves to the second issue raised by the parties as to whether there was any 'Pre-Existing Dispute' prior to the issuance of the Demand Notice under Section 8(1) of the Code. It is the main case of the 'Corporate Debtor' that there was a 'Pre-Existing Dispute' with respect to Rs. 25/- Lakhs amount which was agreed to be spent on advertising and was never adhered to by the 'Corporate Debtor' and that the said allegation was never denied by the 'Operational Creditor'. In response to this, Learned Counsel appearing for the 'Operational Creditor' drew our attention to the 'Rejoinder Affidavit' filed before the Adjudicating Authority wherein there is a specific denial that the 'Operational Creditor' had never come forward to spend Rs. 25/- Lakhs towards advertising. It is significant to mention that a perusal of the m....
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....y the Adjudicating Authority while examining an application under Section 9, which is as follows: 34. Therefore, the adjudicating authority, when examining an application under Section 9 of the Act will have to determine: (i) Whether there is an "operational debt" as defined exceeding Rs. 1 lakh? (See Section 4 of the Act) (ii) Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? And (iii) Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration Proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute? If any one of the aforesaid conditions is lacking, the application would have to be rejected. Apart from the above, the adjudicating authority must follow the mandate of Section 9, as outlined above, and in particular the mandate of Section 9(5) of the Act, and admit or reject the application, as the case may be, depending upon the factors mentioned in Section 9(5) of the Act." "18. From the aforesaid decision, it is clear that th....