Good Luck Traders vs Valley Iron & Steel Co. Ltd. & Anr

Company Appeal (AT) (Insolvency) No. 81 of 2019

IN THE MATTER OF:

M/s. Good Luck Traders ...Appellant

Versus

M/s. Valley Iron & Steel Co. Ltd. & Anr. ...Respondents

Present: For Appellant : Mr. Anshuj Dhingra and Mr. Shubhangda Singh, Advocates

For Respondents: Mr. Arun Saxena and Mr. Saral Sharma, Advocates

ORDER

19.07.2019 The Appellant - 'M/s. Good Luck Traders' filed an application

u/s 9 of the 'Insolvency and Bankruptcy Code, 2016 (for short, the I&B Code')

for 'initiation of corporate insolvency resolution process' against 'Valley Iron &

Steel Co. Ltd.' (Corporate Debtor), the Adjudicating Authority (National Company

Law Tribunal), New Delhi Bench by impugned order dated 17th December, 2018

rejected the application on the ground that the claim is barred by limitation with

the following observations :

"11. It is not disputed that Rs. 39,46,440.26 has

already been paid by the Respondent to the applicant

after issuance of demand notice under Section 8. It is

seen that Rs. 54,46,440.26 was the actual amount of

unpaid amount due to be paid by the Respondent.

Rs.15,00,000/- was paid by the Respondent through 2

3 demand drafts in the month of Feb 2018. It is admitted

by the petitioner in its petition that out of claim of

Rs.1,06,39,290.26/-, Rs. 39464440.26/- is principal

amount remained to be paid by the Respondent and

remaining 66,92,850.26/- is the amount towards

interest calculated by Petitioner @ 24% per annum.

12. The entire principal amount was also paid

through RTGS within 10 days of receipt of demand notice

u/s 8 of the Code. Accordingly, it can be concluded that

Respondent has already paid Rs. 54,46,440.26/- which

was the principal amount due towards unpaid invoices

and no amount towards invoices remained to be paid by

the respondent to the applicant within 10 days of issue

of demand notice u/s 8 of the Code.

13. In the present application, the applicant has

failed to explain the delay as their claim pertains of the

year 2012, which is beyond the limitation period of 3

years. The same should not be entertained for triggering

Corporate Insolvency Resolution Process under Section 9

of the Code."

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Having found that the observations made by the Adjudicating Authority is

contradictory as at one stage, it is stated that the entire principal amount has

been paid and at another stage it observed that the application is beyond the

period of limitation. Learned counsel appearing on behalf of the Respondent

submits that the total amount has been paid and the respondent has not raised

the question of limitation. However, such submission cannot be accepted as the

Adjudicating Authority has observed that the Appellant failed to explain the delay

which pertains to the year 2012.

We have noticed that by Demand Drafts of February, 2018, Respondent

paid certain amount. In such case, we are of the view that the amount having

last paid in February, 2018 the application is not barred by limitation.

Learned counsel appearing on behalf of the Appellant submits that after

issuance of Demand Notice u/s 8(1), the Respondent also paid a sum of Rs.

39,46,440.26 through RTGS dated 31st May, 2018, therefore, it cannot be said to

be a delay or held to be beyond limitation as held by the decision of Hon'ble

Supreme Court in "Innoventive Industries Ltd. v. ICICI Bank [ Innoventive

Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407] :

27. The scheme of the Code is to ensure that when a

default takes place, in the sense that a debt becomes due

and is not paid, the insolvency resolution process begins.

Default is defined in Section 3(12) in very wide terms as

meaning non-payment of a debt once it becomes due and

payable, which includes non-payment of even part thereof

or an instalment amount. For the meaning of "debt", we

have to go to Section 3(11), which in turn tells us that a debt

Company Appeal (AT) (Insolvency) No. 81 of 2019 4

means a liability of obligation in respect of a "claim" and for

the meaning of "claim", we have to go back to Section 3(6)

which defines "claim" to mean a right to payment even if it

is disputed. The Code gets triggered the moment default is

of rupees one lakh or more (Section 4). The corporate

insolvency resolution process may be triggered by the

corporate debtor itself or a financial creditor or operational

creditor. A distinction is made by the Code between debts

owed to financial creditors and operational creditors. A

financial creditor has been defined under Section 5(7) as a

person to whom a financial debt is owed and a financial

debt is defined in Section 5(8) to mean a debt which is

disbursed against consideration for the time value of money.

As opposed to this, an operational creditor means a person

to whom an operational debt is owed and an operational

debt under Section 5(21) means a claim in respect of

provision of goods or services.

28. When it comes to a financial creditor triggering the

process, Section 7 becomes relevant. Under the Explanation

to Section 7(1), a default is in respect of a financial debt

owed to any financial creditor of the corporate debtor -- it

need not be a debt owed to the applicant financial creditor.

Under Section 7(2), an application is to be made under sub-

section (1) in such form and manner as is prescribed, which

takes us to the Insolvency and Bankruptcy (Application to

Company Appeal (AT) (Insolvency) No. 81 of 2019 5

Adjudicating Authority) Rules, 2016. Under Rule 4, the

application is made by a financial creditor in Form 1

accompanied by documents and records required therein.

Form 1 is a detailed form in 5 parts, which requires

particulars of the applicant in Part I, particulars of the

corporate debtor in Part II, particulars of the proposed

interim resolution professional in Part III, particulars of the

financial debt in Part IV and documents, records and

evidence of default in Part V. Under Rule 4(3), the applicant

is to dispatch a copy of the application filed with the

adjudicating authority by registered post or speed post to

the registered office of the corporate debtor. The speed,

within which the adjudicating authority is to ascertain the

existence of a default from the records of the information

utility or on the basis of evidence furnished by the financial

creditor, is important. This it must do within 14 days of the

receipt of the application. It is at the stage of Section 7(5),

where the adjudicating authority is to be satisfied that a

default has occurred, that the corporate debtor is entitled to

point out that a default has not occurred in the sense that

the "debt", which may also include a disputed claim, is not

due. A debt may not be due if it is not payable in law or in

fact. The moment the adjudicating authority is satisfied that

a default has occurred, the application must be admitted

unless it is incomplete, in which case it may give notice to

Company Appeal (AT) (Insolvency) No. 81 of 2019 6

the applicant to rectify the defect within 7 days of receipt of

a notice from the adjudicating authority. Under sub-section

(7), the adjudicating authority shall then communicate the

order passed to the financial creditor and corporate debtor

within 7 days of admission or rejection of such application,

as the case may be.

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."

From the aforesaid finding, it is evident that the claim is disputed, we find

that the ground of delay wrongly shown by the Adjudicating Authority. Further

no ground has to be given as to why the claim of the Appellant has not

'Operational Debt'.

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Learned counsel for the Respondent submits that the total amount as was

due to the Appellant has already been paid but we have noticed that it is

disputed. However, such issue cannot be determined by us so it would have

been brought to the notice of the Adjudicating Authority.

For the reasons aforesaid, we set aside the order dated 17th December,

2018 and remit the case to the Adjudicating Authority (National Company law

Tribunal), New Delhi passed in (IB) 870(ND)/2018 and to pass order issue

after notice and hearing the parties.

The appeal is allowed with aforesaid observations. No cost.

[Justice S.J. Mukhopadhaya] Chairperson

[ Kanthi Narahari ] Member (Technical) /ns/gc

Company Appeal (AT) (Insolvency) No. 81 of 2019