Minimum Threshold Of Rs. 1 Crore Must Be Met, Even If Default Had Occurred Or Demand Notice Was Sent Prior To 24th March, 2020: NCLT Delhi
Pallavi Mishra
25 May 2022 7:30 AM GMT
The National Company Law Tribunal ("NCLT"), New Delhi Bench, comprising of Shri Dharminder Singh (Judicial Member) and Ms. Sumita Purkayastha (Technical Member), while adjudicating the matter of Mr. Daxesh D. Desai v Shopzo Brand Pvt. Ltd., has held that for determining maintainability of an application in terms of Section 4 of the Insolvency and Bankruptcy Code, 2016 ("IBC"), the date...
The National Company Law Tribunal ("NCLT"), New Delhi Bench, comprising of Shri Dharminder Singh (Judicial Member) and Ms. Sumita Purkayastha (Technical Member), while adjudicating the matter of Mr. Daxesh D. Desai v Shopzo Brand Pvt. Ltd., has held that for determining maintainability of an application in terms of Section 4 of the Insolvency and Bankruptcy Code, 2016 ("IBC"), the date of filing of a petition has to be seen and not the date of default or demand notice. No petition under Section 7 or 9 of IBC could be filed for a default of less than Rs. 1 Crore, on or after 24.03.2020, even if the default had occurred or demand notice was sent prior to 24.03.2020.
The order was passed on 23.05.2022.
Background Facts
Mr. Daxesh D. Desai, being the Karta of M/s. Daxesh D. Desai (Hindu Undivided Family business), had supplied fabrics to Shopzo Brand Pvt. Ltd. ("Respondent") and had raised invoices amounting to Rs. 60,65,818/-. The Respondent failed to make payments against the invoices and admitted the default vide an email dated 03.02.2021. The Applicant issued a demand notice to the Respondent on 19.07.2021 under Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. After no payments were received, the Applicant filed an application under Section 9 of the IBC on 09.09.2021, seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against Shopzo Brand Pvt. Ltd. ("Respondent") for a default amounting to Rs. 82,13,604/-, inclusive of interest.
Issue
1. Whether the petition is maintainable in terms of Section 4 of the IBC, 2016?
Observation
The Bench observed that the Ministry of Corporate Affairs had issued a notification dated 24.03.2020, whereby the threshold limit for applications filed under Section 7 or 9 of the IBC, on or after 24.03.2020, was increased to Rs. 1 Crore even for defaults that had occurred before 24.03.2020. Accordingly, the minimum threshold under Section 4 of IBC was also increased to Rs. 1 Crore. The Bench placed reliance on the NCLAT judgment in Jumbo Paper Products V. Hansraj Agrofresh Pvt. Ltd., (Company Appeal (AT) (Ins) No. 813 of 2021), wherein it was held that the any statute/law can be applied retrospectively only if explicit provision regarding its retrospective application is made in the statute.
It was observed that the petition being filed on 09.09.2021 for a default of Rs. 82,13,604/-, the threshold limit of Rs. 1 Crore of debt was applicable.
"In fact, the date of the filing has to be seen and not the date of the default or the date of the demand notice, which is immaterial. The intent of legislation to fix the threshold limit was to save the Companies from being rotted to NCLT for initiation of CIRP proceedings, due to COIVD-19 effect. The said notification was always prospective in nature but having retrospective repercussion also."
Decision
The Bench dismissed the application in view of Section 4 of the IBC and the increased threshold limit for debt therein.
Case Title: Mr. Daxesh D. Desai v Shopzo Brand Pvt. Ltd., IB 533/(ND)/2021.
Counsel for Respondent: Adv. Akshay Sharma and Adv. Shivam Wadhwa
