Date Of Default To Be Assessed For Each Invoice For At Least 3 Years Preceding The Filing Date; NCLT Mumbai

Background Facts:

On 25.02.2021, Laxmi Trading Corporation (Operational Creditor) filed a petition to initiate a CIRP against Corporate Debtor for an outstanding amount of Rs. 3,73,32,239.20. Although the date of default was not specified in Part IV of the Petition, the Operational Creditor provided evidence of the default through invoices with due dates, claiming that Rs. 2,17,47,092.13 was the due amount.

The Corporate Debtor had procured hardware goods from the Operational Creditor through several purchase orders for six different projects. The agreed payment terms were that all payments should be made within 30 days from the invoice date. Partial payments were made by the corporate debtor, totaling Rs. 2,17,47,092.13, while the operational creditor had issued invoices for a total of Rs. 3,71,55,764.80.

An email was sent by the Operational Creditor requesting payment for all the projects. The Corporate Debtor claimed to have deposited Rs. 4 Lakhs in the operational creditor's account, but the operational creditor confirmed not receiving this amount. Despite sending payment reminders to the corporate debtor in January and March 2019, explaining financial constraints, these emails went unanswered. The last partial payment made by the corporate debtor toward the invoices was Rs. 3 Lakhs in October 2019.

A demand notice was served by the Operational Creditor requesting repayment of the debt amount, including interest, totaling Rs. 3,73,32,239.30. This amount included interest calculated at a rate of 24% per annum up to 29.02. 2020. However, the corporate debtor failed to respond to this demand notice.

Contentions of the Corporate Debtor:

The Corporate Debtor argued that the Operational Creditor has combined different causes of action into a single petition. It claimed that the petition is not valid since it pertains to not just different invoices, but also distinct projects and separate contracts or purchase orders. Further, the petition is time-barred and not maintainable. Additionally, the Operational Creditor has not submitted an Affidavit as required by Section 9(3)(b) of the Code outlining whether there was a pre-existing dispute. It has also not provided a certificate from a financial institution confirming that the Corporate Debtor has not made any payments towards the outstanding operational debt, as mandated by Section 9(3)(c) of the Code.

The Corporate Debtor also argued that out of the 234 invoices attached to the petition, 224 invoices were clearly time-barred and placed reliance on Next Education India Pvt. Ltd. vs. K12 Techno Services Pvt. Ltd., highlighting that the NCLT should consider invoices from the three years preceding the Section 9 application's filing date rather than starting the limitation period from March 12, 2011.

NCLT Verdict:

The NCLT Mumbai dismissed the petition to initiate CIRP against the Corporate Debtor. It noted that the defaults occurred between 2012 and 2014. It observed that the key analysis from the Corporate Debtor’s contention and reliance on Next Education India Pvt. Ltd. vs. K12 Techno Services Pvt. Ltd. case is that the date of default should be assessed for each invoice, and invoices beyond the three-year period from the filing date should be excluded unless the limitation period is extended under Section 18 of the Limitation Act through acknowledgment.

The Tribunal found that the different ledger accounts of the Operational Creditor show that no payments had been received related to the projects for which invoices were issued between 2012 and 2015, constituting a significant portion of the defaulted debt.

The Tribunal also held that the argument made by the applicant that the existence of a running account and the receipt of a payment of Rs. 3,00,000 extended the limitation period was not accepted, as the applicant maintained separate ledgers for each project in their records, and payments from the Corporate Debtor were specifically allocated to each project.

In conclusion, on perusal of one of the ledger accounts and emails by the Operational Creditor, it was noted that there was no acknowledgment of debt for projects other than the PipalKoti Project by the Corporate Debtor. Consequently, the NCLT determined that the date of default for the outstanding amounts under five projects occurred in 2016 or earlier, and noted there was no acknowledgment of debt for these amounts. Further, when these amounts were excluded, the total debt claimed in default fell below the threshold limit of Rs. 1 Crore as stipulated in Section 4 of the Code.

Case Title: Laxmi Trading Corporation v. Hindustan Construction Company Ltd.

Case No.: CP (IB) No.147/MB-IV/2021

Counsel for Operational Debtor: Ms. Sneha, Advocate, and Mr. Ashish Mehta, Advocate

Counsel for Corporate Debtor: Ms. Savani Gupta, Advocate, Mr. Lalit Munsi, Advocate and Ms. Rohini Hirwane, Advocate

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