2017 (12) TMI 100 - AT - Insolvency and Bankruptcy

Maintainability of application under Insolvency and Bankruptcy Code, 2016 - period of limitation - Held that - Insolvency and Bankruptcy Code, 2016 has come into force with effect from 1st December, 2016. Therefore, the right to apply under I&B Code accrues only on or after 1st December, 2016 and not before the said date (1st December, 2016). As the right to apply under section 9 of I&B Code accrued to appellant since 1st December, 2016, the application filed much prior to three years, the said application cannot be held to be barred by limitation. In so far as the application under section 9 of the Arbitration and Conciliation Act, 1996 preferred by appellant, it has been specifically pleaded by the appellant and not disputed by the respondent that the appellant filed an application to withdraw the application under section 9 of the Arbitration Act, expressly reserving liberty to institute fresh proceeding for interim relief. In such circumstances and as no arbitral dispute is pending, the application cannot be rejected. There is nothing on the record to suggest that the respondent disputed the claim prior to issuance of notice under section (1) of section 8 of the I&B Code. Thus we are of the view that the Adjudicating Authority, Mumbai Bench was not correct in holding that the application was barred by limitation. For the said reason the order rejecting the application cannot be sustained.

Summary

Issues:
1. Whether the application preferred by the operational creditor is barred by limitation?

Analysis:
The appellant, an operational creditor, entered into a Business Conducting Agreement with the respondent, a corporate debtor, to manage a music concept store. A subsequent addendum scaled down the monthly fee. The respondent failed to pay the agreed fee, leading to the termination of the agreement. The appellant claimed a due amount and initiated insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (I&B Code). The Adjudicating Authority dismissed the application as time-barred, citing a previous arbitration application's dismissal. The key question was whether the application was barred by limitation.

The appellant contended that the law of limitation did not apply, referencing a previous decision. The respondent did not contest the appeal, and the plea of limitation was discussed in a similar case. The Appellate Tribunal emphasized that the I&B Code is not for money recovery but for initiating insolvency resolution. The Supreme Court also addressed the applicability of the Limitation Act to insolvency proceedings. It was clarified that the right to apply under the I&B Code accrued after its enforcement in December 2016, making the application timely.

Regarding the arbitration application, the appellant withdrew it with liberty to initiate fresh proceedings. The respondent did not dispute the claim before the notice under the I&B Code. The Tribunal concluded that the Adjudicating Authority erred in deeming the application time-barred. The impugned order was set aside, and the case was remitted for admission after due notice and hearing. The Adjudicating Authority was instructed to admit the application if complete, allowing time for rectification if needed. The appeal was allowed with no costs awarded.

In summary, the Tribunal ruled in favor of the appellant, determining that the application under the I&B Code was not barred by limitation. The decision highlighted the specific provisions of the I&B Code regarding limitation and the applicability of the Limitation Act in insolvency proceedings, ultimately setting aside the dismissal order and remitting the case for further proceedings.