TMI Blog2023 (1) TMI 195X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellate 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 As noticed earlier, SICA came to be repealed and IBC came into force (Sections 7 to 9 and various other Sections), on the same day viz, on 01.12.2016. Section 6, IBC provides that where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate CIRP in respect of 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 . Section 238A, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntions before the arbitrator, except the legal questions discussed and decided in this judgment. Appeal dismissed. - Civil Appeal No. 1669 of 2020 - - - Dated:- 4-1-2023 - Justice Ajay Rastogi And Justice C. T. Ravikumar For the Appellant : Mr. Piyush Joshi, Adv. Mr. Senthil Jagadeesan, AOR Ms. Sumiti Yadava, Adv. Ms. Sonakshi Malhan, Adv. Mr. Sajal Jain, Adv. For the Respondent : Mr. Sumit Attri, Adv. Ms. Ritu Anand Vishwakarma, Adv. Mr. Satatya Anand, Adv. For M/S. Cyril Amarchand Mangaldas JUDGMENT C.T. RAVIKUMAR, J. 1. This appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 (IBC) is preferred by Sabarmati Gas Limited (hereinafter referred to as the appellant) against the final judgment dated 19.12.2019 of the National Company Law Appellate Tribunal (NCLAT) in Company Appeal (AT) (Insolvency) No. 820 of 2019. As per the same the NCLAT dismissed the appeal preferred by the appellant against order dated 27.06.2019 in CP (IB) No. 516/9/NCLT/AHM/2018 of the National Company Law Tribunal, Ahmedabad Bench, (NCLT) dismissing the application filed under Section 9 of the IBC, in its capacity as operational creditor of Shah Alloys Limited ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R as case No. 13 of 2010 and as per order dated 31.08.2010 the respondent was declared as a sick company . It is the case of the appellant that by virtue of Section 22 of SICA there was a moratorium on the respondent and therefore, it could not have proceeded against the respondent for outstanding dues, thenceforth, without obtaining the permission of the BIFR. On 07.08.2012 the appellant stopped the gas supply and then, intervened in the pending proceedings before the BIFR viz., 13 of 2010. On 08.03.2013, as per Miscellaneous Application No. 432 of 2013 the appellant sought permission of the BIFR for initiating proceedings against the respondent for recovery of an outstanding dues of Rs. 4,71,56,095/-. On 09.09.2015, the BIFR passed an order thereon. Shortly thereafter, to be precise, w.e.f. 01.12.2016, SICA was repealed. 5. According to the appellant, BIFR became functus officio and all proceedings pending before it, including the case of the respondent, were abated and several sections of IBC, including Sections 8 and 9, came into effect on 01.12.2016. Hence, after the enactment of IBC, the appellant issued a demand notice on 01.04.2017, under Section 8 of the IBC read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng or continuing with any legal proceeding for realisation of a right vested by law on the appellant. 7. Resisting the contentions of the appellant and supporting the impugned judgment the respondent would contend that both NCLT and NCLAT had rightly appreciated the factual positions thereon obtained in the case on hand and applied the provisions correctly, to arrive at the finding that the application filed by the appellant under Section 9, IBC was barred by limitation. According to the respondent there is discrepancy between the stand of the appellant in the Section 9 application and the Demand Notice under Section 8, of the IBC as relates the quantum of alleged outstanding dues. It is also contended that such a discrepancy also exists with respect to the date of cause of action inasmuch as going by Section 9 application the alleged debt fell due on and from November, 2011 and as per the Demand Notice the so-called debt fell due on and from 9th July, 2012 and in either case, Section 9 application was barred by limitation as it was filed only in the year 2018. To wit, beyond 3 years from the alleged default. The benefit of exclusion of period under Section 22(5) of the SICA is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance 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. 8.2 Section 22(5), SICA, relied on by the appellant for seeking exclusion of the period from 31.08.2010 to 01.12.2016 while computing the period of limitation, was as hereunder: - 22. Suspension of legal proceedings, contracts, etc. (1) (2) (3) (4) (5) In computing the period of limitation for the enforcement of any right, privilege, obligation or liability, the period during which it or the remedy for the enforcement thereof remains suspended under this section shall be excluded. 9. Thus, Section 22 (1), SICA as extracted above, would make it clear that there was a statutory bar to take to any proceeding for realisation of a right referred to in the said Section against an industrial company when once an enquiry under Section 16, SICA is pending against it or any scheme referred to under Section 17 thereof is under preparation or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised in Paramjeet Singh Patheja s Case, this court held that the words proceedings and again suit had to be construed differently as carrying different meanings, since, they had been raised to denote different things. It was concluded that Section 22 (1), SICA only prohibits recovery against the industrial company and there would be no protection offered to guarantors against the recovery proceedings. 12. The above conflicting decisions need not detain us from considering the issue further in the light of a subsequent three-Judge Bench decision of this court in KSL Industries Ltd. Vs. M/s. Arihant Threads Ltd (2015) 1 SCC 166 . The three-judge bench, after noting the contentions raised before and the findings of the two-judge bench in Kailash Nath Agarwal s case (supra), found that it did not deal with the question regarding the scope of protection afforded to the industrial company concerned, under Section 22 (1) of SICA. Having observed thus, the three-Judge Bench went on to consider the said question. In that regard, paragraphs 32, 33 and 53 are relevant and reads thus: 32. As observed earlier, Sub-section (1) of Section 22 may be divided into two parts. In one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act on the footing that the test for determining whether the Government is bound by a statute is whether it is expressly named in the provision which it is contended binds it, or whether it is manifest that from the terms of the statute, that it was the intention of the legislature that it shall be bound , and that the intention to bind would be clearly made out if the beneficent purpose of the statute would be wholly frustrated unless the Government were bound. 13. Thus, it is obvious that the three-Judge Bench in KSL Industries Ltd. (supra) considered the question whether a recovery application under the Recovery of Debts Due to Banks and Financial Institutions Act, 1963 (RDDB Act) would lie or be proceeded with against a sick company in view of the Bar contained in Section 22 (1) of SICA. Evidently, even after finding that an application for recovery under RDDB Act could not specifically be described as proceedings for execution, distress or the like against any of the properties, it was held that it is certainly a proceeding which may result in the execution and distress against the property of the company and is therefore, liable to be construed as a proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the BIFR the appellant could have resorted to arbitration proceedings also has to fail. 15. Now, we will have to consider the purported intent of Section 22 (5), SICA. The intention appears to be to protect the interest of such a party who was prevented from lawfully enforcing the right to seek for recovery of dues during the operative period of the bar under Section 22 (1), SICA, if it is otherwise available even after the conclusion of proceedings before the BIFR, to the extent specifically mentioned therein. According to us, any other understanding of the provisions under Section 22 (5) would be wholly pointless and purposeless. When the appellant being a party to BIFR in the sense, on intervention obtained an order to the respondent company to incorporate its dues in the Draft Rehabilitation Scheme (DRS) in an application seeking permission to effect recovery of the dues and such a stage had not reached till 01.12.2016, whether there would be any justification to hold that on the repeal of SICA it could not claim the benefit flowing from the provisions under Section 22 (5) of SICA, subject to the provisions under the relevant laws governing the appropriate forum chos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany would get abated and the prescription of such period of 180 days became applicable only to such a company. A scanning of the stated sub-clause (b) and the provisos would not reveal or indicate prescription of any such specific time limit as regards the opposite parties in the abated reference, inquiry or proceeding for proceeding with their available remedy under IBC. In the said circumstances, if such an opposite party falls within the expression operational creditor , under IBC, it could only be taken that it should be governed by the provisions under the IBC in regard to the period of limitation for approaching the Adjudicating Authority. In this context, it is also relevant to note that as relates the company whose reference or inquiry or any proceeding got abated, as mentioned, it need not pay any fee for making reference under IBC, in terms of the second proviso to the substituted sub-clause (b) of Section 4 of the SICA Repeal Act. Needless to say, that this exemption is not available to other parties to the abated proceedings, or reference or inquiry concerned. 18. Section 6, IBC provides that where any corporate debtor commits a default, a financial creditor, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, it could not be construed that Section 9 application should invariably be filed on the eleventh day of service of advance demand notice in Form 3. Section 238 A, IBC, dealing with period of limitation, has come into force w.e.f. 06.06.2018 and it reads thus: - 238A. Limitation. The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be. 20. Obviously, Section 238A, IBC makes the provisions of the Limitation Act, 1963 applicable to computation of the period of limitation in regard to proceedings before the Adjudicating Authority and the other forums. This position is made explicitly clear in the decision of this Court in B.K. Educational Services Private Limited v. Parag Gupta and Associates (2019) 11 SCC 633 at paragraphs 43 and 48 and they read thus: - 43. It will be seen from a reading of Section 8 (2) (a) that the corporate debtor shall, within a period of 10 days of the receipt of the demand notice, bring to the notice of the ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable to applications filed under Sections 7 and 9 of IBC. It be so, the position is that the period of limitation is three years from the right to apply accrues but the delay is condonable on sufficient grounds. It is to be noted that the third column in Article 137 of the Limitation Act posits that time runs when the right to apply accrues . In the decision in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Private Limited and Anr. (2020) 15 SCC 1 this Court considered the question as to when right to apply would accrue? Paragraph 32 of the said decision, in so far as it is relevant for the purpose of this case reads thus:- 32. When Section 238-A of the Code is read with the above noted consistent decisions of this Court in Innoventive Industries [Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407], B.K. Educational Services [B.K. Educational Services (P) Ltd. v. Paras Gupta Associates, (2019) 11 SCC 633], Swiss Ribbons [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17], K. Sashidhar [K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150], Jignesh Shah [Jignesh Shah v. Union of India, (2019) 10 SCC 750], Vashdeo R. Bhojwani [Vashdeo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 019) 10 SCC 750] makes it clear that the Court indeed applied the principles so stated in B.K. Educational Services [B.K. Educational Services (P) Ltd. v. Paras Gupta Associates, (2019) 11 SCC 633], and held that the winding-up petition filed beyond three years from the date of default was barred by time. 34.1. Even in the later decisions, this Court has consistently applied the declaration of law in B.K. Educational Services [B.K. Educational Services (P) Ltd. v. Paras Gupta Associates, (2019) 11 SCC 633]. As noticed, in Vashdeo R. Bhojwani [Vashdeo R. Bhojwani v. Abhyudaya Coop. Bank Ltd., (2019) 9 SCC 158], this Court rejected the contention suggesting continuing cause of action for the purpose of application under Section 7 of the Code while holding that the limitation started ticking from the date of issuance of recovery certificate dated 24-12-2001. Again, in Gaurav Hargovindbhai Dave [Gaurav Hargovindbhai Dave v. Asset Reconstruction Co. (India) Ltd., (2019) 10 SCC 572], where the date of default was stated in the application under Section 7 of the Code to be the date of NPA i.e. 21-7-2011, this Court held that the limitation began to run from the date of NPA and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23. The above-mentioned positions settled with respect to Section 7, IBC will proprio vigore apply to Section 9, IBC. In short, as relates an application under Section 9, IBC the date of coming into force of IBC, viz, 01.12.2016 would not form the trigger point of limitation and the period of limitation for an application for initiating of CIRP under Section 9, IBC would be three years from the date when the right to apply accrues as provided by Article 137 of the Limitation Act and further that the right to apply under the IBC would accrue on the date when default occurs and it is extendable only by application of Section 5 of the Limitation Act. In view of the nature of the provision under SICA and the nature of the orders issuable by the BIFR and the positions qua an application for initiation of CIRP under Section 9 of IBC, referred above, we think it absolutely unnecessary to delve into the question of applicability or otherwise of Section 14 of the Limitation Act in regard to proceedings under Section 9, IBC as the same provides only for exclusion of time of proceedings bona fide in Court without jurisdiction. 24. When the limitation period for initiating CIRP under S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held it as time barred. When once it is so found we would have remanded the matter for consideration of the question of limitation afresh, but for the fact that the application under Section 9, IBC was dismissed assigning reason of existence of pre-existing dispute as well. 27. The appellant and the respondent have cited various decisions in support of their rival contentions on the sustainability or otherwise of the dismissal of the stated application on the ground of existence of pre-existing dispute(s) between the parties. Nonetheless, we are of the considered view that in that regard, only the decisions to be referred infra, require consideration. Paradoxically, both sides relied on the decision of this Court in Macquarie Bank Limited v. Shilpi Cable Technologies Limited (2018) 2 SCC 674 . 28. Macquarie Bank Limited s case (supra) is relied on by the appellant to drive home the point that production of the certificate/statement from the financial institution maintaining the accounts of the operational creditor concerned, under Section 9 (3)(c), IBC, is not a condition precedent to trigger CIRP and hence, its insistence will be violative of the law laid down thereunde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 407, at paragraph 29, this Court held thus: - 29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing - i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code. 32. A scanning of the decisions referred supra, would reveal that existence of a pre-existing dispute should entail dismissal of an application filed under Section 9 IBC at the threshold. Therefore, the question is whether the respondent had raised a dispute describable as a preexisting dispute so as to entail dismissal of application of the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is clear that such notice must bring to the notice of the operational creditor the existence of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating Authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the dispute is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating Authority has to reject the application. (emphasis supplied) 33. In the light of the positions thus settled by this Court in Macquarie Bank Limited (supra) and Mobilox Innovations (P) Ltd. (supra), we will examine the question whether there was a pre-existing dispute between the parties, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory 35. The learned Senior Counsel for the appellant would contend that last para of the said letter dated 04.01.2013 would reveal the fact that the respondent had agreed to effect the payments or bills and requested only to wait for the old bills payments till restructuring is agreed by BIFR and in other words, non-existence of a dispute. That apart, the appellant heavily relied on paragraph 2.7 and 2.10 (iv) of Annexure 40 which is the proceeding of BIFR in Case No.13 of 2010 dated 09.09.2015, to canvass the position that the contention of the respondent regarding existence of a pre-existing dispute with respect to the dues payable to it, is bereft of any basis. The aforesaid relevant paragraphs in Annexure A-40 are as under: - 2.7 The Bench then took MA No. 432/2013. The ld advocate representing the applicant (Sabarmati Gas Ltd.) sought time to appear prepared in the next date of hearing, since they have been engaged recently in this case. The ld advocate representing the company submitted that the applicant is an unsecured creditor and he accepted the dues of the applicant. He assured that their reconciled dues will be taken care of in the DRS, as unsecured creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual situation it is only apposite to be remindful of the observation in Mobilox Innovations (P) Ltd. (supra) that in doing the act of separating the grain from chaff the Court need not to be satisfied that the defence is likely to succeed. It is enough that a dispute exists between the parties and in other words, what is to be seen is whether there was a plausible contention requiring investigation for the purpose of adjudication. Taking note of the nature of the dispute of the respondent as referred hereinbefore in respect of the claim made by the appellant, we do not find any reason to disagree with the concurrent findings of the Tribunals that there existed a pre-existing dispute between the parties before the receipt of demand notice under Section 8, IBC. In other words, the dismissal of the application under Section 9, IBC on the ground of pre-existing dispute cannot be held to be patently illegal or perverse. We also do not find any reason, in the facts and circumstances, to hold that the case set up by the respondent was a patently feeble legal argument. At any rate, we are not inclined to brush aside the case of the respondent as spurious. We may hasten to add here that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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