Murphy Steel vs Gujarat Wedge Wire Screens Limited

[Arising out of order dated 31.10.2023 passed by the Adjudicating Authority, National Company Law Tribunal, Division Bench-I, Ahmedabad in CP (IB)/355(AHM)/2020]

IN THE MATTER OF:

M/s. Murphy Steel Registred Office at: 90, Ardeshir Dady, Street, Office: VP Road, Mumbai-400004. ...Appellant

Versus

M/s. Gujarat Wedge Wire Screens Limited Registered address at: 1707, GIDC Industrial Estate, Halol, Panchmahal-389350, Gujarat. ...Respondent

Present:

Appellant: Present but appearance not marked.

For Respondents: Mr. S.K. Sharma and Ms. Dyuti Ghai, Advocates.

JUDGMENT

[Per: Barun Mitra, Member (Technical)]

The present appeal filed under Section 61 of Insolvency and Bankruptcy

Code 2016 ('IBC' in short) by the Appellant arises out of the Order dated

31.10.2023 (hereinafter referred to as 'Impugned Order') passed by the

Adjudicating Authority (National Company Law Tribunal, Division Bench-I, 2

Ahmedabad) in CP(IB) No.355/AHM/2020. By the Impugned Order, the

Adjudicating Authority has dismissed the Section 9 petition filed by the

Appellant seeking to bring the Corporate Debtor under the rigours of

Corporate Insolvency Resolution Proceedings ('CIRP' in short). Aggrieved by

this impugned order, the present appeal has been preferred.

2. The Learned Counsel for the Appellant making his submissions stated

that the M/s. Murphy Steel-Operational Creditor had been supplying goods

to the Corporate Debtor- M/s. Gujarat Wedge Wire Screens Limited and that

the business relationship between them had history of more than three

decades. It was further submitted that though goods were supplied to the

Corporate Debtor, payments remained pending following which several

reminders were sent to the Corporate Debtor. Since payments were not

forthcoming, a Demand Notice under Section 8 of the IBC was issued to the

Corporate Debtor on 26.12.2019 seeking payment of Rs. 1,57,06,741/- only

comprising of principal amount of Rs. 60,79,306/- towards supply of goods

and interest amount of Rs. 96,27,435/- only @ 24% per annum. It was

contended that the date of default was 22.01.2017 as reflected in Part-IV since

the last invoice which remained outstanding was dated 07.01.2017. While

admitting that the Respondent- Corporate Debtor had sent a reply to the

Demand Notice on 07.01.2020, no further payment was received from them

towards the outstanding operational debt. It was further submitted that the

Appellant filed a Section 9 application before the Adjudicating Authority on

08.09.2020 which has been wrongly dismissed by the Adjudicating Authority

Company Appeal (AT) (Insolvency) No. 171 of 2024 3

on the grounds of limitation and hence the present appeal has been preferred

assailing the impugned order.

3. Having noted the principal submissions of the Appellant, we now come

to the relevant findings of the Adjudicating Authority in the impugned order

which has aggrieved the Appellant, which are as extracted below:

"14. We have heard counsels and perused the record. It is not in dispute that the materials were supplied by the Operational Creditor to the Corporate Debtor. However, perusal of the application reveals that the debts are very old and are barred by limitations. We agree with the contentions of the Corporate Debtor as quoted in B. K. Educational Society (supra). No explanation has been given as regards to opening balance how they have arrived and further the Operational Creditor kept quiet for a long time before filing the present application."

(Emphasis supplied)

4. It is the case of the Appellant that the above finding of the Adjudicating

Authority that the present case was barred by limitation was erroneous since

the Adjudicating Authority had failed to notice that the business relations

between the two parties was based on a running account. Since the last

invoice became due on 22.01.2017, on which date all the earlier invoices from

the period of March 2011 remained outstanding, the entire dues should have

been treated in a composite manner since the transactions were based on

running account payment. Hence the invoices were not barred by limitation.

Per contra, the impugned order at para 9 has noted the rival contention of the

Company Appeal (AT) (Insolvency) No. 171 of 2024 4

present Respondent that "except for one invoice which is dated 07.01.2017

amounting to Rs. 8,849/-, all claims are time-barred".

5. To examine whether the debt was old and barred by limitation as held

by the Adjudicating Authority, we have taken note of the 27 invoices which

have been submitted by the Operational Creditor in support of his claim as

recorded at para 6 of the impugned order as placed at pages 28-29 of the

Appeal Paper Book ('APB' in short). The Learned Counsel for the Appellant

has not disputed this list of invoices. Admittedly, 26 of these invoices pertain

to the period from 25.03.2011 to 28.10.2016. When we look at the invoices,

we find that these 26 invoices are dated between 25.03.2011 to 28.10.2016

with the due date for payment shown as 09.04.2011 and 12.11.2016

respectively. When we compare the aforementioned due dates of payment as

indicated on these invoices with the date of filing of Section 9 application,

clearly enough these 26 invoices are more than three years old from the date

of filing of Section 9 application which is 08.09.2020. In the present case, the

Appellant has also failed to bring on record any subsequent acknowledgement

of liability in writing by the Corporate Debtor in respect of these 26 invoices

which could possibly have extended the period of limitation to bring the

outstanding dues within three years from date of filing of Section 9

application.

6. Having perused the material on record and after hearing the

submissions of the Learned Counsel for the Appellant, we also do not find any

document/agreement between the two parties which evidences running

account payment underlying their business operations. In the absence of any

Company Appeal (AT) (Insolvency) No. 171 of 2024 5

documentary evidence which provides foundational basis to the claim of the

Appellant that there was a running account, the reliance placed on the

judgment of this Tribunal in Shri Abhinandan Jain Vs. Tanaya

Enterprises Pvt. Ltd. in Company Appeal (AT) (Ins.) No. 1017 of 2020 does

not come to the aid of the Appellant. Furthermore, on perusal of the reply to

the Section 8 Demand Notice sent by the Corporate Debtor on 07.01.2020, as

placed at pages 127-136 of APB it comes to our notice that it has been

categorically denied that any operational debt was due qua the Operational

Creditor. Moreover, it was also stated in the said reply that the Operational

Creditor has failed to explain as to why he continued to supply material if his

payment was pending for nearly 8 years. The same contention has been

reiterated by the Corporate Debtor in their reply affidavit to Section 9

application that the invoices were more than three years old and therefore

time barred except for one invoice dated 07.01.2017 which carried invoice

value of Rs. 8,849/- only which did not satisfy the threshold limit of Rs. 1

lakh as prescribed under Section 4 of the IBC to trigger CIRP proceedings. We

thus do not find any merit in the argument advanced by the Learned Counsel

for the Appellant that since the last invoice did not attract limitation, the other

26 invoices which have been submitted alongwith it also escapes the bar of

limitation on the unsubstantiated pretext of running account of payments.

7. At this stage, we may take note of the decision of the Hon'ble Supreme

Court in the matter of B.K. Educational Services Pvt. Ltd. Vs. Parag Gupta

and Ors. (2019) 11 SCC 633 wherein after considering the statutory

provisions of the IBC and the Limitation Act, it has been settled that for filing

Company Appeal (AT) (Insolvency) No. 171 of 2024 6

application under Section 9 of the IBC, Article 137 is attracted. Paragraph 42

of the above judgment reads as follows:

"42. It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. "The right to sue", therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application."

8. Furthermore, as the scope and objective of the Code is not to give a

fresh lease of life to time barred debts, we are of the considered view that the

ratio of the Hon'ble Supreme Court in Babulal Vardharji Gurjar Vs. Veer

Gurjar Aluminium Industries (P) Ltd. (2020) 15 SCC 1 is squarely

applicable to the facts of this case. Hon'ble Supreme Court has also reiterated

in this judgment the applicability of Limitation Act and that period for

limitation is governed by Article 137 of the Limitation Act. In para 32 of the

said judgment, following has been laid down:

"32. When Section 238-A of the Code is read with the above- noted consistent decisions of this Court in Innoventive Industries, B.K. Educational Services, Swiss Ribbons, K. Sashidhar, Jignesh Shah, Vashdeo R. Bhojwani, Gaurav Hargovindbhai Dave and Sagar Sharma respectively, the following basics undoubtedly come to the fore: (a) that the Code is a beneficial legislation intended to put the corporate debtor back on its feet and is not a

Company Appeal (AT) (Insolvency) No. 171 of 2024 7

mere money recovery legislation; (b) that CIRP is not intended to be adversarial to the corporate debtor but is aimed at protecting the interests of the corporate debtor; (c) that intention of the Code is not to give a new lease of life to debts which are time-barred;

(d) 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 right to apply accrues; (e) 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."

The Adjudicating Authority has therefore not erred in holding that the

Appellant cannot rely on the 26 other invoices wherein the default occurred

over three years prior to date of filing Section 9 application to cross the

threshold mark in claiming an outstanding amount of Rs. 1,57,06,741 /- in

their Section 8 Demand Notice and Section 9 application.

9. Having recorded our findings, we would like to emphasize that the

principal legislative intent behind the IBC is insolvency resolution so as to

bring the Corporate Debtor to its feet and in view of this clear legislative fiat,

we cannot allow the IBC forum to be used as a substitute for money recovery

proceedings.

Company Appeal (AT) (Insolvency) No. 171 of 2024 8

10. In view of the above discussions, we are of the considered opinion that

there are no convincing reasons to interfere with the order of the Adjudicating

Authority. The appeal being devoid of merit, we find no reasons to entertain

it. In the result, the appeal is dismissed. We would like to add that the

Appellant shall have the liberty to move the appropriate forum of law to seek

remedial action as permissible in law to recover their purported debt. There

is no order as to costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical)

Place: New Delhi Date: 05.03.2024

Ram N.

Company Appeal (AT) (Insolvency) No. 171 of 2024