TMI Blog2021 (3) TMI 767X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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, evidence that the first unpaid debt is dated 12.03.2011 - It is significant to note that there is gap between 14.06.2012 and 02.04.2015 of almost three years. Be that as it may, the date of default is of relevance here. As the Code mandates, Section 9 Application is filed after the issuance of Demand Notice under Section 8(1) which contains the details of unpaid Operational Debt. It is also interesting to note that Part IV of the Application under Section 9 mentions the date of default as June 30, 2017 ; for an amount of ₹ 2,39,85,521.35/-. It is seen from the record that the date of first default is March 2011 and the cumulative amount claimed is ₹ 2,39,85,521.35/-. Section 9 Application emanates from the Demand Notice under Section 8(1). Both have to be read conjointly and the date of default cannot be construed to be different merely because it is differently mentioned as 2011 in Section 8 Notice and 2017 in Application under Section 9 - the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17-3-2021 - [Justice Bansi Lal Bhat] Acting Chairperson , [Justice Anant Bijay Singh] Member (Judicial) And [Ms. Shreesha Merla] Member (Technical) For the Appellant : Mr. Amit Sibal, Sr. Advocate with Mr. Kumar Sudeep, Mr. Saksham Dhingra, Ms. Shraddha Gupta and Mr. Pavan Kumar, Advocates For the Respondent : Mr. Debal Banerji, Sr. Advocate with Mr. Sanjay Nuli, Mr. Suraj Kaushik and Mr. Agam Sharma, Advocates JUDGEMENT [ Per; Shreesha Merla, Member (T) ] 1. The Appellant M/s. Next Education India Private Limited ( Operational Creditor ) has filed an Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for short the I B Code ) against M/s. K12 Techno Services Private Limited ( Corporate Debtor ) and the Adjudicating Authority (National Company Law Tribunal), 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. On an Appeal preferred by the Appellant/ Operational Creditor in Company Appeal AT (Insolvency) No. 98 of 2019 dated 01.08.2019, this Tribunal allowed the Appeal observing as follows; The Appellant brought on record (Form 5) of debt and default . It is also brought on record the Demand Notice u/s 8(1) of the I B Code was issued on 8th August, 2017. The Adjudicating Authority on the ground that the respondent has filed reply on 8th September, 2017 to the Demand Notice noticed that several disputes had been raised. They have also annexed several correspondence about the defective services provided by the Appellant. However, when we asked, the learned counsel for the Respondent could not lay hand on any of the correspondence to show that prior to Section 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 03.01.2011 for providing Digital Classroom Solutions to the Corporate Debtor , which is engaged in the business of Educational Development. It is stated that the Operational Creditor manages and provides services to Gowtham Model Schools and the Corporate Debtor approached the Operational Creditor to provide Digital Classroom Solutions in its effort to provide better Teaching and Coaching facilities to the students. It is stated that the Operational Creditor agreed to provide Hardware, Content and Maintenance Services to the Corporate Debtor as per the terms and conditions of the Master Agreement. During the course of their transactions, the Operational Creditor raised 187 invoices during the period March 12, 2011 and June 30, 2017 for total amount of ₹ 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Section 9 Application is barred by limitation as the amount alleged to be due pertains to the month of March 2011 onwards whereas the Petition was filed on 26.10.2017; that the Demand Notice and From-V do not mention the Addendum Agreement; that the Adjudicating Authority has rightly observed that the alleged Agreement was not properly executed; that the Appellant had terminated their Agreement with Sri Gowtham Academy of General and Technical Education (SGAGTE) on 08.02.2016; that there is a long standing relationship between the Operational Creditor and the Corporate Debtor because of which the Corporate Debtor themselves contacted the end users i.e. SGAGTE to assess the amount due and payable ; that the Operational Creditor had failed to provide the requisite 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 of IBC for triggering CIRP Process. 13. Whether the Operational Creditor can change the date of default by confining the invoices to a later period, when the Demand Notice under Section 8 includes all the invoices from the date of default and the debt amount is crystallized based on the invoices? 14. It is the case of the Operational Creditor that these invoices read with the Letter dated 11.09.2015, addressed by the Corporate Debtor to the Operational Creditor as part of the audit confirmation and signed and stamped by the Corporate Debtor shows that an amount of ₹ 2.46/- Crores was due and payable and hence the Application is within the limitation period. 15. The law with respect to date of default and limitation under IBC has been clearly 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. E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation has to be given so as to make the Code workable. 6. Having heard the learned counsel for both sides, what is apparent is that Article 62 is out of the way on the ground that it would only apply to suits. The present case being an application which is filed under Section 7, would fall only within the residuary Article 137. As rightly pointed out by learned counsel appearing on behalf of the appellant, time, therefore, begins to run on 21.07.2011, as a result of which the application filed under Section 7 would clearly be time-barred. So far as Mr Banerjee s reliance on para 7 of B.K. Educational Services Private Limited (supra), suffice it to say that the Report of the Insolvency Law Committee itself stated that the intent of the Code could 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 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccrues; 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 had occurred over three years prior to the date of filing of the application, the application would be time-barred save and except in those cases where, on facts, the delay in filing may be condoned; and (h) an application under Section 7 of the Code is not for enforcement of mortgage liability and Article 62 of the Limitation Act does not apply to this application. (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 deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50.00 UnPaid 19,238,830.00 2012-2013/HYD/TN/59039 4/9/2012 4/9/2012 123,550.00 UnPaid 19,362,380.00 2012-2013/HYD/TN/59075 4/9/2012 4/9/2012 123,925.00 UnPaid 19,486,305.00 2012-2013/HYD/TN/59572 4/10/2012 4/10/2012 123,550.00 UnPaid 19,609,855.00 2012-2013/HYD/TN/61385 4/18/2012 4/18/2012 122,900.00 UnPaid 19,732,755.00 2012-2013/HYD/TN/61384 4/18/2012 4/18/2012 122,900.00 UnPaid 19,855,655.00 2012-2013/HYD/TN/67619 5/5/2012 5/5/2012 123,525.00 UnPaid 19,979,180.00 2012-2013/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lars 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 juncture, we find it relevant to reproduce the statutory provisions of Section 8 and Section 9 of the Code as hereunder; Section 8: Insolvency resolution by operationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 repayment of the unpaid operational debt; (c) the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor; (d) no notice of dispute has been received by the operational creditor or there is no record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also crystallized the amount at ₹ 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 ₹ 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 12.03.2011, which limitation ends on 12.03.2014. If the argument of the Counsel for the Operational Creditor is accepted, then there would be several dates of default 2011, 2012, 2015 etc. It is not the discretion of the Tribunal to accept one date or the other. The date of default is fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 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 ₹ 25/- Lakhs towards advertising. It is significant to mention that a perusal of the material on record does not evidence any such issue raised by the Operational Creditor prior to the issuance of the Demand Notice. It is stated in that Affidavit that training was given to the teachers as and when required by the Corporate Debtor . We observe that there is no such d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 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 the existence of dispute must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice. If it comes to the notice of the Adjudicating Authority that the operational debt is exceeding ₹ 1 lakh and the application shows that the aforesaid debt is due and payable and has not been pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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