NCLAT Rules, Payment Made During Pendency Of CIRP Application Cannot Be Considered For Calculating Threshold U/S 4 Of IBC
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench at New Delhi, comprising Justice Rakesh Kumar Jain (Member-Judicial) and Naresh Salecha (Member-Technical), has held that payments made by the corporate debtor during the pendency of a Section 9 application under the Insolvency and Bankruptcy Code, 2016 (IBC), cannot be considered for determining the threshold under Section 4 of the Code. The Tribunal set aside the order of the Adjudicating Authority, which had dismissed the Section 9 application on the ground of lack of threshold and remanded the matter for fresh adjudication.
Background
The appellant, Devika Resources Pvt. Ltd., formerly known as Kalinga Enterprises Pvt. Ltd., was engaged in selling iron ore to the respondent, MAA Manasha Devi Alloys Pvt. Ltd. Owing to the respondent’s failure to make the requisite payments, the appellant served a demand notice dated 04.04.2022 under Section 8 of the Code, claiming operational debt amounting to Rs. 1,16,25,583/-, comprising a principal sum of Rs. 1,10,81,333/- and accrued interest of Rs. 4,61,229/-.
Subsequently, an application under Section 9 was filed on 20.05.2022 seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor. This application was admitted on 31.10.2022, and CIRP proceedings commenced. However, the respondent filed an appeal before the NCLAT, alleging that the Adjudicating Authority had not granted them a fair hearing. Allowing the appeal on 19.10.2023, the NCLAT remanded the matter back to the Tribunal for fresh adjudication.
During the pendency of the remanded proceedings, after pleadings were complete, the respondent informed the appellant via email that it had deposited Rs. 20 lakhs suo motu into the appellant’s account. The appellant contended that this payment was made without its consent and expressed willingness to return the amount. Nevertheless, the Adjudicating Authority dismissed the Section 9 application on the ground that the payment reduced the default amount below the threshold limit of Rs. 1 crore, thereby rendering the application non-maintainable.
Contentions
The appellant argued before the NCLAT that as per Section 5(11) of the Code, the date of initiation of the CIRP is the date on which the application is filed, whereas Section 5(12) stipulates that the insolvency commencement date is the date of admission of the application. It was contended that the threshold requirement prescribed under Section 4 of the Code must be satisfied as on the date of filing the application and any subsequent payments made by the corporate debtor during the pendency of the application cannot impact its maintainability.
In support of this contention, the appellant relied upon the judgments of the Supreme Court in Rajamundry Electric Supply Corporation Limited v. A. Nageshwara Rao & Ors [(1995) 2 SCR 1066] and Manish Kumar v. Union of India [(2021) 5 SCC 1], as well as a prior decision of the NCLAT in Hyline Medoconz Pvt. Ltd. v. Anandaloke Medical Centre Pvt. Ltd [CA (AT) (Ins) No. 1036 of 2022 ]. These rulings emphasized that the threshold requirement is to be determined on the date of filing the application and not on the date of admission.
On the other hand, the respondent submitted that the threshold should be determined at the time of admission of the application, contending that the subsequent payment of Rs. 20 lakhs brought down the outstanding dues below the statutory threshold. The respondent further argued that the judgments cited by the appellant were not applicable to the present case.
Observations and Decision
The NCLAT, after considering the submissions of both parties and examining the records, held that the Adjudicating Authority had committed a patent error in dismissing the Section 9 application on the basis of the subsequent payment. The appellate tribunal observed that the issue of the relevant date for determining the threshold under Section 4 of the Code was squarely covered by binding precedents cited by the appellant.
The bench noted that when the Section 9 application was filed, the appellant’s claim exceeded the threshold limit of Rs. 1 crore. The subsequent deposit of Rs. 20 lakhs by the respondent, made without the consent of the appellant during the pendency of proceedings, could not have the effect of defeating the maintainability of the application. The Tribunal emphasized that the validity and maintainability of an application must be assessed based on the circumstances as they existed on the date of filing.
The NCLAT further remarked that the respondent failed to cite any contrary authority or valid reason to depart from this settled principle. Accordingly, the Tribunal set aside the impugned order of the Adjudicating Authority and restored the Section 9 application. The matter was remanded back to the Tribunal for adjudication on merits in accordance with the law, with a direction to the parties to appear before the Tribunal on the specified date.
Verdict
In conclusion, the NCLAT reiterated that payments made by the corporate debtor during the pendency of a CIRP application cannot be factored into determining the threshold requirement under Section 4 of the IBC. The appeal was allowed, and the matter was remanded to the Adjudicating Authority for fresh consideration on merits.
Appearance
For Appellant: Mr. Akshay Goel, Mr. Kanishk Khetan, Mr. Harsh Jadon, Advocates
For Respondents: Mr. Shreyas Vaghe, Advocate
Cause Title: Devika Resources Pvt. Ltd. V. MAA Manasha Devi Alloys Pvt. Ltd.
Case No: Comp. App. (AT) (Ins) No.938 of 2024 & I.A. No. 3418, 3419 of 2024
Coram: Justice Rakesh Kumar Jain [Member-Judicial], Naresh Salecha [Member-Technical]
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