TaxTMI 
TaxTMI 
2023 (1) TMI 195
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....ditor of 'Shah Alloys Limited' (hereinafter referred to as the 'respondent'). 2. In the captioned appeal mainly, twin questions of law call for consideration id est :- (i) Whether in computation of the period of limitation in regard to an application filed under Section 9, IBC the period during which the operational creditor's right to proceed against or sue the corporate debtor that remain suspended by virtue of Section 22 (1) of the Sick Industrial Companies (Special Provisions Act, 1985) (SICA) can be excluded, as provided under Section 22 (5) of SICA? (ii) Whether the respondent has raised a dispute which is describable as 'pre-existing dispute' between itself and the appellant warranting dismissal of application under Section 9 of the IBC at the threshold? While considering the stated twin questions certain other allied questions of relevance may also crop up for consideration, which we will state and consider at the appropriate time. The respondent -corporate debtor was the petitioner in Case No. 13 of 2010 before the Board for Industrial and Financial Re-construction (BIFR) and the appellant herein was the applicant in Miscellaneous Application No. 432 of 2013 in....
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....IBC read with Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority), Rules 2016, in Form No. 3 demanding payment of operational debt of Rs. 4,71,56,094.76/-. On 10.04.2017, the respondent gave a reply to the aforesaid demand notice stating that there was shortfall in supply of natural gas and also a huge loss due to the disconnection of gas supply. Raising such contentions, the respondent declined the liability to pay the amount demanded. Thereafter, the appellant filed an application under Section 9 of the IBC before NCLT, Ahmedabad seeking initiation of Corporate Insolvency Resolution Process (CIRP) in its capacity as Operational Creditor of the respondent. The said application was dismissed by the NCLT as per order dated 27.06.2019 on the grounds of being barred by limitation and existence of a 'pre-existing dispute' between the appellant and the respondent. It is the appeal challenging the same before the NCLAT that ultimately culminated in the impugned judgment. 6. We will firstly consider the first question of law arising on account of dismissal of the appellant's application under Section 9, IBC on the ground of being barred by limitation. In the l....
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....SICA is not available to the appellant for computing the period of limitation in respect of an application under Section 9, IBC, it is further contended. According to the respondent, Section 22 (1), SICA did not accord a blanket protection against running of cause of action and it is intended to suspend legal proceedings of coercive nature so as to secure assets of an enterprise. In other words, the contention is that filing application for recovery was permissible and Section 22 (1), SICA did not forbid the same and it interdicted only execution or distress or the like against the properties of the industrial company concerned in the contingencies contemplated thereof. 8. When Sections 8 and 9, IBC came into force only with effect from 01.12.2016, the question of initiation of the CIRP by filing an application under Section 9 was possible only from 01.12.2016. But the question is whether any party, which falls under the expression 'Operational Creditor' under the IBC claims to have operational debt due from an industrial company and the cause of action for recovery of the same had accrued much earlier than 01.12.2016, but prevented from enforcing the right against such company in....
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....n or a sanctioned scheme is under implementation or where an appeal under Section 25 relating to an industrial company is pending, except with the consent of the Board or the Appellate Authority, as the case may be. As noticed earlier, SICA came to be repealed and IBC came into force (Sections 7 to 9 and various other Sections), on the same day viz, on 01.12.2016. 10. A two-Judge Bench decision of this Court in Paramjeet Singh Patheja's case (supra), more particularly, paragraph 43 (vii), is relied on by the appellant to support its claim for exclusion of the period from 31.08.2010 to 01.12.2016 while computing the period of limitation for filing applicants under Section 9, IBC. It, in so far as relevant reads thus: - "43. For the foregoing discussions we hold: (i) (ii) (iii) (iv) (v) (vi) ......... (vii) It is a well-established rule that a provision must be construed in a manner which would give effect to its purpose and to cure the mischief in the light of which it was enacted. The object of Section 22, in protecting guarantors from legal proceedings pending a reference to BIFR of the principal debtor, is to ensure that a scheme for rehabilitation woul....
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....tuted for the winding up of the industrial company or for execution, distress or the like against any of the properties of such industrial company, and in the second part it provides that "no suit" for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advances granted to the industrial company, "shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority." 33. Undoubtedly, the present proceedings viz. "application for recovery" cannot specifically be described as proceedings for execution, distress or the like against any of the properties, but it is certainly a proceeding which results in and in fact had resulted in the execution and distress against the property of the Company and is therefore liable to be construed as a proceeding for the execution, distress or the like against any of the properties of the industrial company. We are of the view that such a construction would be within the intendment of Parliament wherever the proceedings for recovery of a debt which has been secured by a mortgage or pledge of the property of....
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.... properties of the industrial company. Accordingly, it was held that such a construction would be within the intendment of the Parliament. Moreover, it was held therein that there would be no purpose in construing the Parliament intended that such an application for recovery by summary procedure should lie or be proceeded with, but only its execution be interdicted or inhibited. That apart the three-Judge Bench found nothing contrary in the intention of the SICA to exclude a recovery application from the purview of a Section 22 thereof, taking note of the fact that the purpose of the said provision is to protect the properties of sick company, so that they may be dealt with in the best possible way for the purpose of its revival by BIFR. 14. In view of the provisions under Section 22 (1) of SICA and the decisions in Paramjeet Singh case (Supra) and in KSL & Industries Limited (supra), it is worthwhile to note that in the case on hand it was the industrial company (respondent herein) that approached the BIFR under the provisions of SICA and got it declared as 'sick company' by filing Case No. 13 of 2010; that it is thereafter that the appellant filed Miscellaneous Application No. 4....
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.... Section 252 of IBC which reads thus: - "252. The Sick Industrial Companies (Special Provisions) Repeal Act, 2003 shall be amended in the manner specified in the Eighth Schedule." 16.1The Eighth Schedule would reveal the nature and manner of amendment specified thereunder as substitution to sub-clause (b) of Section 4, of SICA Repeal Act, 2003 w.e.f. 01.12.2016, as hereunder: "(b) On such date as may be notified by the Central Government in this behalf, any appeal preferred to the Appellate Authority or any reference made or inquiry pending to or before the Board or any proceeding of whatever nature pending before the Appellate Authority or the Board under the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) shall stand abated: Provided that a company in respect of which such appeal or reference or inquiry stands abated under this clause may make reference to the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016 within one hundred and eighty days from the commencement of the Insolvency and Bankruptcy Code, 2016 in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016: Provided further that no fees shall be....
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....such corporate debtor in the manner provided under Chapter II of IBC. Section 8, which falls under Chapter II, deals with insolvency resolution by operational creditor. It provides that an operational creditor may, on the occurrence of default, deliver a demand notice of unpaid of operational debt or copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed. It is apposite to note that a seemingly printing error had occurred in Section 8 (1), IBC inasmuch as instead of 'a demand notice of unpaid operational debt' it is printed as 'a demand notice of unpaid operational debtor.' Evidently, this must have occurred as in the Gazette Notification also the word 'debtor' is following the words 'unpaid operational'. The word 'debtor' used therein has to be split into 'debt' and 'or' so as to serve the purpose and to give the intended meaning to Section 8 (1) and this view would get support from sub-section (2) of Section 8 itself. Sub-section 2 of Section 8, IBC in so far as it is relevant, reads thus: - "8. (1) .... (2) The corporate debtor shall, within a period of ten days of the receipt of the de....
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....udes a suit or arbitration proceeding relating to certain matters. Again, under Section 8 (2) (a), the corporate debtor may, in the alternative, disclose the pendency of a suit or arbitration proceedings filed before the receipt of the demand notice. It is clear therefore, that at least in the case of an operational creditor, "default" must be nonpayment of amounts that have become due and payable in law. The "dispute" or pendency of a suit or arbitration proceedings would necessarily bring in the Limitation Act, for if a suit or arbitration proceeding is time-barred, it would be liable to be dismissed. This again is an important pointer to the fact that when the expression "due" and "due and payable" occur in Sections 3(11) and 3 (12) of the Code, they refer to a "default" which is non-payment of a debt that is due in law i.e. that such debt is not barred by the law of limitation. It is well settled that where the same word occurs in a similar context, the draftsman of the statute intends that the word bears the same meaning throughout the statute (see Bhogilal Chunilal Pandya v. State of Bombay 1959 Supp (1) SCR 310, AIR 1959 SC 356, 1959 Cri LJ 389, Supp SCR at pp. 313- 14). It ....
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....t Reconstruction Co. (India) Ltd., (2019) 10 SCC 572] and Sagar Sharma [Sagar Sharma v. Phoenix ARC (P) Ltd., (2019) 10 SCC 353] respectively, the following basics undoubtedly come to the fore: (a) that the Code is a beneficial legislation intended to put the corporate debtor back on its feet and is not a mere money recovery legislation; (b) that CIRP is not intended to be adversarial to the corporate debtor but is aimed at protecting the interests of the corporate debtor; (c) that intention of the Code is not to give a new lease of life to debts which are time-barred; (d) 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 right to apply accrues; (e) that the trigger for initiation of CIRP by a financial creditor is default on the part of the corporate debtor, that is to say, that the right to apply under the Code accrues on the date when default occurs; (f) that default referred to in the Code is that of actual non-payment by the corporate debtor when a debt has become due and payable; and (g) that if default h....
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.... of the Code (i.e. 1-12-2016) provides the starting point of limitation for an application under Section 7 of the Code and hence, the application in question, made in the year 2018, is within limitation, is not even worth devoting much time. A bare look at para 21 of the impugned order [Babulal Vardhaji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., 2019 SCC OnLine NCLAT 295] leaves nothing to guess that such observations by the Appellate Tribunal had only been assumptive in nature without any foundation and without any basis. There is nothing in the Code to even remotely indicate if the period of limitation for the purpose of an application under Section 7 is to commence from the date of commencement of the Code itself. Similarly, nothing provided in the Limitation Act could be taken as the basis to support the proposition so stated by the Appellate Tribunal. In fact, such observations had been in the teeth of law declared by this Court in B.K. Educational Services [B.K. Educational Services (P) Ltd. v. Paras Gupta & Associates, (2019) 11 SCC 633]. 38.1. It appears that at the given point of time, NCLAT had been readily adopting such a proposition in other cases too, so a....
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....ided by Section 137 of the Limitation Act, 1963 and the same would commence from the date of default and is extendable only by application of Section 5 of the Limitation Act, 1963 it is incumbent on the Adjudicating Authority to consider the claim for condonation of the delay when once the proceeding concerned is found filed beyond the period of limitation. 25. As relates Section 5 of the Limitation Act showing 'sufficient cause' is the only criterion for condoning delay. 'Sufficient Cause' is the cause for which a party could not be blamed. We have already taken note of the legal bar for initiation of proceedings against an industrial company by virtue of Section 22 (1), SICA and obviously, when a party was thus legally disabled from resorting to legal proceeding for recovering the outstanding dues without the permission of BIFR and even on application permission therefor was not given the period of suspension of legal proceedings is excludable in computing the period of limitation for the enforcement of such right in terms of Section 22(5), SICA. In the absence of provisions for exclusion of such period in respect of an application under Section 9, IBC, despite the combined read....
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....ate from the financial institution maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor is certainly not a condition precedent to triggering the insolvency process under the Code. The expression "confirming" makes it clear that this is only a piece of evidence, albeit a very important piece of evidence, which only "confirms" that there is no payment of an unpaid operational debt. This becomes clearer when we go to clause (d) of Section 9(3) which requires such other information as may be specified has also to be furnished along with the application." 29. This position is thus fairly settled, as above. On the other hand, the respondent relied on the said decision to buttress its contention that existence of 'pre-existing dispute' should entail dismissal of application under Section 9, IBC. 30. In Macquarie Bank Limited (supra), this Court held, at paragraphs, 13 and 14 thus: - "13. The first thing to be noticed on a conjoint reading of Sections 8 and 9 of the Code, as explained in Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. (2018) 1 SCC 353, decided on 21-9-2017 at paras 33 to 36,....
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....erational creditor, as defined, may, on the occurrence of a default (i.e. on non-payment of a debt, any part whereof has become due and payable and has not been repaid), deliver a demand notice of such unpaid operational debt or deliver the copy of an invoice demanding payment of such amount to the corporate debtor in the form set out in Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 read with Form 3 or 4, as the case may be [Section 8 (1)]. Within a period of 10 days of the receipt of such demand notice or copy of invoice, the corporate debtor must bring to the notice of the operational creditor the existence of a dispute and/or the record of the pendency of a suit or arbitration proceeding filed before the receipt of such notice or invoice in relation to such dispute [Section 8(2) (a)]. What is important is that the existence of the dispute and/or the suit or arbitration proceeding must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice, as the case may be. [...] It is only if, after the expiry of the period of the said 10 days, the operational creditor does not either receive payment from the corpora....
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....llant on 01.04.2017 and the respondent replied the same as per letter Annexure A-42 letter dated 10.04.2017 viz., within 10 days from the date of receipt of Annexure A-41. Evidently, the respondent, in Annexure A-42 reply raised the contentions that there was shortfall in gas supply and that it had suffered huge loss due to the disconnection of gas supply. True that, in terms of the decision in Mobilox Innovations (P) Ltd. (supra) what is to be looked into is the existence or otherwise of a dispute and/or the suit or arbitration proceedings prior to the receipt of demand notice or invoice, as the case may be. In the case on hand, as noticed earlier, the appellant had issued a demand notice under Section 8, IBC read with the Rule 5 of 2016 Rules on 01.04.2017. Obviously, the NCLT and NCLAT referred to a letter dated 04.01.2013 (Annexure A-36 herein) to hold that existence of a pre-existing dispute between the parties revealed from the same. The said letter dated 04.01.2013 issued by way of a reply by the respondent to the letter from the appellant dated 03.01.2013, reads thus:- "Date : 04.01.2013 To, The Director, Sabarmati Gas Ltd., Gandhinagar. Respected Sir, R....
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....mati Gas Ltd. is disposed off with the direction to the company to incorporate the dues of the applicant in the DRS." 36. True that paragraph 2.7 of Annexure 40 carries the recording of the submissions made on behalf of the respondent before the BIFR by the learned advocate, as above. Citing all such aspects, the learned Senior Counsel for the appellant contended that the contention of the respondent regarding 'pre-existing dispute' is only a patently feeble legal argument/assertion of fact unsupported by evidence and therefore, it was to be rejected by the Tribunals. It is further contended by the applicant that directions at paragraph 2.10 (iv) also is relevant in this context as it would reveal that the Misc. Application No.432 of 2013 filed by the Appellant herein was disposed of with the direction to the respondent company to incorporate the position of the appellants/applicant therein in the DRS. 37. Per contra, the learned counsel for the respondent would submit that a scanning of paragraph 2.7 itself would reveal that what was assured by the counsel appearing on behalf of the respondent before the BIFR was not full payment of the amount as claimed by the appellant thereu....
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....otice under Section 8, IBC, and the correctness or its truthfulness is a matter of evidence. In short, the respondent has succeeded in raising a dispute describable as 'pre-existing dispute'. In that view of the matter once we find that the Tribunals have rightfully held that there existed a 'pre-existing dispute' between the parties there cannot be an order of remand of the matter to the Tribunal for reconsideration of Section 9 application under IBC. 39. In the contextual situation, it is also relevant to refer to the fact, rightly taken note of by the NCLT, that the respondent herein had filed a Commercial Suit No.92 of 2017 on 28.04.2017 before the Commercial Court in Ahmedabad, claiming damages for the loss suffered by it due to discontinuation of gas supply. True that on 12.07.2018, the said Commercial Civil Suit was dismissed by the Commercial Court at Ahmedabad on the ground of being barred by limitation. Annexure-B would reveal that against the judgment of dismissal in the said suit, the respondent herein had filed First Appeal No. 3841 of 2018 before the High Court of Gujarat at Ahmedabad. It was disposed of on 11.08.2021, taking into account the joint submission that pa....