Pranav B Prem

The National Company Law Tribunal (NCLT), Mumbai Bench, comprising Shri K. R. Saji Kumar (Judicial Member) and Shri Sanjiv Dutt (Technical Member), has held that an application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC), based on an Arbitral Award in favor of the Operational Creditor, cannot be admitted after three years from the date of the Award. This ruling is in accordance with Article 137 of the Limitation Act, 1963, read with Section 238A of the IBC.

Brief Facts

Between 2006 and 2008, the Corporate Debtor procured packaging materials from the Operational Creditor but failed to discharge its outstanding liabilities. Consequently, the Operational Creditor initiated arbitration proceedings before the Andhra Pradesh Micro, Small and Medium Enterprises Council (MSME Council).

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On 26 February 2011, the MSME Council passed two awards in favor of the Operational Creditor, directing the Corporate Debtor to pay ₹72,48,465 and ₹6,96,608 along with compound monthly interest at a rate three times the bank rate as per Reserve Bank of India (RBI) notifications. Following the Corporate Debtor’s default in payment, the Operational Creditor sought initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor under Section 9 of the IBC.

Challenge to the Application

The Corporate Debtor filed IA (I.B.C) No. 2362/MB/2023 on 10 April 2023 under Sections 65 and 76 of the IBC, along with Rule 11 of the National Company Law Tribunal Rules, 2016, challenging the maintainability of the application. It contended that the application was barred by limitation and lacked proof of debt and default. Additionally, the Corporate Debtor sought the imposition of a maximum penalty against the Operational Creditor and its directors under Section 76 of the IBC for allegedly furnishing false information before the Tribunal.

Arguments of the Parties

Operational Creditor's Contentions

1. The Operational Creditor argued that the Corporate Debtor had not raised any dispute before receiving the demand notice dated 1 December 2019.

2. Although the Corporate Debtor replied to the demand notice, it did so beyond the prescribed 10-day period.

3. It was asserted that no amount had been received as full and final settlement and that the Consent Terms had no bearing on the debt payable by the Corporate Debtor.

Corporate Debtor's Contentions

1. The application was barred by limitation as the MSME Council Awards were passed on 26 February 2011, and the present application was filed on 23 March 2022, exceeding the three-year limitation period under Article 137 of the Limitation Act, 1963.

2. The Corporate Debtor was not liable to the Operational Creditor for the MSME Council Awards since its assets and liabilities had already been transferred to Supermax Personal Care Private Limited (SPCPL) under a Business Transfer Agreement (BTA) dated 30 December 2010.

3. The Operational Creditor had already received ₹1,90,00,000 in full and final settlement from SPCPL, nearly equivalent to its claims under the MSME Council Awards.

Observations of the Tribunal

The Tribunal noted that the MSME Council Awards passed on 23 February 2011 had attained finality after the Corporate Debtor withdrew its appeal before the Supreme Court on 11 March 2013. However, the present application was filed on 23 March 2022, beyond the three-year limitation period under Article 137 of the Limitation Act.

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The Tribunal rejected the Operational Creditor’s argument that Article 136 of the Limitation Act should apply, as proceedings under the IBC are not in the nature of execution of decrees. Relying on the Supreme Court’s ruling in B.K. Educational Services Private Limited v. Parag Gupta and Associates,[Civil Appeals No. 23988/2017], the Tribunal reiterated that Article 137 applies to IBC matters. Since the MSME Council Awards were passed in 2011 and attained finality in 2013, the application filed in 2022 was clearly time-barred under Section 238A of the IBC.

Verdict

In view of the above findings, the Tribunal dismissed the petition, holding that an application under Section 9 of the IBC based on an Arbitral Award cannot be entertained after three years from the date of the Award.

Appearance

Operational Creditor: Adv. Siddhant Sawhney a/w. Adv. Ajit Anekar and Adv. Anuj Bhattad i/b Auris legal 

Corporate Debtor: Adv. Shyam Kapadia a/w Adv. Shweta Jaydev, Adv. Anuja Bhanushali, Adv. Rohaan Cama, Adv. Aman Sadiwala & Adv. Abhyarthana Singh i/b Rashmikant & Partners and Mr. Raymond Gadkar, Corporate Debtor's Representative

Cause Title: Haabia Resources Private Limited V. Vidyut Metallics Private Limited

Case No: CP (IB) No. 1090/MB/2022 [With IA(IBC) No. 2362/MB/2023]

Coram: Hon’ble Shri K. R. Saji Kumar [Member (Judicial)], Hon’ble Shri Sanjiv Dutt [Member (Technical)]

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