Black Pearl Hotels Pvt. Ltd vs Planet M Retail Ltd

(arising out of Order dated 04.05.2017 passed by the National Company Law Tribunal, Mumbai Bench, in C.P. No.464/I&BP/NCLT/MAH/2017)

In the matter of:

Black Pearl Hotels Pvt. Ltd. ...Appellant Vs. Planet M Retail Ltd. ...Respondent

Present: For Appellant: Shri Pritha Srikumar Iyer, Advocate For Respondent: None

JUDGEMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

The appellant Black Pearl Hotels Pvt. Ltd. who claimed to be operational

creditor, engaged in operating a retail store in a building situated at First

Floor, Curzon Complex, No.9, Bangalore - 560001, entered into a Business

Conducting Agreement dated 1st February 2008 with respondent, Planet M

Retail Limited - (corporate debtor), to conduct and manage the business of

running a music concept store by name "Planet M" on behalf of operational

creditor, in consideration of which, corporate debtor is liable to pay monthly

conducting fee to the operational creditor.

2. Subsequently, at the request of the corporate debtor on the reasoning

that business venture is not making profit, on 24th June, 2009, an addendum

to agreement was entered whereby the monthly minimum guaranteed fee was 2

scaled down to Rs.7 lakhs for a period of only 26 months from 1st February,

2009 to 31st March, 2011 retrospectively.

3. According to appellant - operational creditor, the respondent - corporate

debtor continued to pay Rs.7 lakhs per month from April, 2011 to September,

2011 as fees instead of paying Rs.11 lakhs per month in terms of Business

Conduct Agreement and the Addendum to the said agreement. Thereafter,

since October, 2011 the corporate debtor failed to pay the conducting fee and,

therefore, the operational creditor terminated the business conduct

agreement.

4. On the ground that a sum of Rs.3,92,38,405 is due from corporate

debtor, the appellant - operational creditor issued notice under sub-section

(1) of section 8 of the Insolvency and Bankruptcy Code, 2016 (hereinafter

referred to as I&B Code). The Respondent - corporate debtor, in its reply dated

18th March, 2017 denied the claim on the ground that the operational creditor

has not duly performed its duty in terms of agreement.

5. After waiting for 10 days and having received such reply, the appellant

- operational creditor, filed an application under section 9 before the

Adjudicating Authority (National Company Law Tribunal) Mumbai Bench,

Mumbai registered as CP No.464/I&BP/NCLT/MAH/2017 for initiation of

corporate insolvency resolution process against the respondent - corporate

debtor.

6. The Adjudicating Authority by impugned order dated 4th May 2017

having noticed that an arbitration application was filed by operational

creditor, which was dismissed on 4th March, 2014, dismissed the application 3

under section 9 on one of the grounds that the application was barred by

limitation with following observation:

"11. The another contention of the operational creditor that

since Arbitration Application was filed for the appointment of

Arbitrator under Section 11 of the Arbitration and Conciliation

Act, 1996 and hence the recovery of debt is not barred by

limitation, is far fetching in view of the fact that the Arbitration

Application was dismissed on 4.4.2014 and that claim covered

the debit notes raised from November, 2011 to the date of filing

of Arbitration Application on 30.3.2012. In order to save

limitation on this portion of the claim, the operational creditor

should have obtained liberty to proceed against the corporate

debtor but that is not the case herein, the Arbitration Application

was dismissed without any liberty. In so far as the debit notes

subsequent to the filing of Arbitration Application the same is not

covered in the Arbitration Application, the corporate debtor is not

in possession of the premises, not carried on his business

activities and the raising of the debit notes against the corporate

debtor was illegal. It is to be noted that after the last payment

in September, 2011, neither there was an acknowledgement of

liability nor any payment by the corporate debtor. In this

situation, the whole debit as claimed by the financial creditor is

time barred.

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12. Section 3(11) of IB Code provides that "debt" means a

liability or obligation in respect of a claim which is due from any

person and includes a financial debt and operation debt. When

the debt is a time barred one, there is no legal obligation on the

part of the corporate debtor to pay the same and due to lapse of

time the right to sue is barred by limitation, hence, in this case,

there is no debt as defined in the IB Code.

13. In view of the above discussion, this Bench is of the view

that the debt is time barred and unenforceable and hence the

petition is dismissed."

7. The questions that arises for consideration is :

"Whether the application preferred by appellant - operational creditor is barred by limitation?"

8. Learned counsel for the appellant contended that law of limitation is

not applicable and referred to decision of this Appellate Tribunal in

"Neelkanth Township and Construction Pvt. Ltd. vs. Urban

Infrastructure Trustee Ltd." of Company Appeal (AT) (Insolvency)

No.44/2017.

9. In spite of service of notice the respondent has not appeared to contest

this appeal. The pleading made in the company petition and the appeal has

not been controverted.

9. In 'Neelkanth Township and Construction Pvt. Ltd. vs. Urban

Infrastructure Trustee Ltd.', similar plea was taken by the appellant of the 5

said appeal. This Appellate Tribunal by Judgement dated 11th August, 2017

observed and held as follows:

"The next ground taken on behalf of the appellant is that

the claim of the respondent is bared by limitation, as the

Debentures were matured between the year 2011 - 2013 is

not based on Law. There is nothing on the record that

Limitation Act, 2013 is applicable to I&B Code. Learned

Counsel for the appellant also failed to lay hand on any of the

provision of I&B Code to suggest that the Law of Limitation Act,

1963 is applicable. The I&B Code, 2016 is not an Act for

recovery of money claim, it relates to initiation of Corporate

Insolvency Resolution Process. If there is a debt which includes

interest and there is default of debt and having continuous

course of action, the argument that the claim of money by

Respondent is barred by Limitation cannot be accepted."

10. In Neelkanth Township and Construction Pvt. Ltd. vs. Urban

Infrastructure Trustee Ltd., Civil Appeal No.10711 of 2017, the parties raised

before Hon'ble Supreme Court the question of application of Limitation Act

for initiation of Corporate Insolvency Resolution Process under I&B Code. The

Hon'ble Supreme Court by order dated 23rd August 2017 while dismissing the

appeal observed as:

"In view of the this, we find no merit in the appeal.

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Accordingly, the appeal is dismissed keeping the question of law viz. whether the Limitation Act would apply to this proceeding, open."

11. In this case even if it is accepted that the Limitation Act, 1963 is

applicable for initiation of Corporate Insolvency Resolution Process, in such

case Article 137 of the Limitation Act, 1963 will be applicable, which is quoted

below:

"Description of application Period of Time from which Limitation period begins to run

Any other application for Three years When the right which no period of to apply accrues.

limitation is provided elsewhere in this division."

12. 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.

13. 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. 7

In such circumstances and as no arbitral dispute is pending, the application

cannot be rejected.

14. 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. In the aforesaid background, 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.

15. We accordingly set aside the impugned order dated 04.05.2017 passed

by the Adjudicating Authority, Mumbai Bench in CP

No.464/I&BP/NCLT/MAH/2017 and remit the case for admission after notice

and hearing the parties. If the application under section 9 is otherwise

complete, the Adjudicating Authority will admit the application. In case the

application is incomplete or defective, the Adjudicating Authority will allow

time to the appellant to complete the documents/remove the defect in terms

of proviso to sub-section (5) of section 9 of I&B Code. The Adjudicating

Authority is required to pass a reasoned order.

16. The appeal is allowed with aforesaid observations and directions.

However, in the facts and circumstances of the case, there shall be no order

as to costs.

(Justice S.J. Mukhopadhaya) Chairperson Justice A.I.S. Cheema) (Balvinder Singh) Member (Judicial) Member (Technical)

New Delhi 17th October, 2017 /rs/