Barun Mitra, Member (Technical)]
1. 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, 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 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 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 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 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 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.
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.
