Any Default Falling Within Section 10-A Period Of IBC Must Be Excluded When Calculating Total Outstanding Debt: NCLT Hyderabad

Brief Facts

The case involves Noveltech Feeds Private Limited, which is engaged in a dispute regarding contractual and financial matters. The petitioner, Noveltech Feeds Private Limited, had entered into a contractual agreement with M/s.Gold Chick Hatcheries & Food Private Limited (Respondent/Corporate Debtor) concerning business operations, financial obligations, or supply agreements.

The operational creditor deals in the products of poultry feeds and raised invoices as per and supplied goods. The Corporate Debtor did not pay the amount totalling to Rs.1,29,03,363/- and interest of Rs.18,02,845/- @ 24% for the period from 19.09.2021 to 31.03.2022. On the failure of the Corporate Debtor to pay the outstanding amount, the Operational Creditor served the demand notice dated 24.05.2022. Despite the notice, the Corporate Debtor did not pay the amount and the date of default took place on 16.09.2021.

The Corporate Debtor contended that the notice under Section 8 of IBC was not sent at the registered office of the Corporate Debtor. The notice was also not accompanied by invoices, documents etc. The Operational creditor also supplied poor quality of feed which resulted in mortality of the birds and consequently farmers suffered losses, thereby directly affecting the business of the Corporate Debtor. This was brought to the notice to the Operational Creditor, but nothing had happened. The Corporate Debtor also claimed that the the principal amount of Rs.2,27,00,973/- has been raised against the bills from 01.04.2020 to 05.01.2021 and therefore hit by Section 10-A of the IBC.

NCLT Judgement

The tribunal while adjudicating on the issue of the claim dealt with Section 10-A of the Insolvency and Bankruptcy Code, 2016. The tribunal stated that Section 10-A of the IBC specifically prevents the initiation of insolvency proceedings for defaults committed between March 25, 2020 to March 25, 2021. It also mentioned that ~

The legislative intent behind Section 10-A of the Insolvency and Bankruptcy Code (IBC) is clear and unambiguous - CIRP cannot be initiated based on defaults occurring during the specified period of March 25, 2020 to March 25, 2021.

The NCLT highlighted that the provision was introduced to provide relief to corporate debtors during the economic distress caused by the COVID-19 pandemic. Therefore, any default falling within this period must be excluded when calculating the total outstanding debt. The default in most of the invoices took place during this period. It also cited the judgement of the Hon'ble Supreme Court in the case of Ramesh Kymal versus Siemens Gamesa Renewable Power Private Limited (2020) 3 SCC 22 stating that;

The expression "shall ever be filed" is a clear indicator that the intent of the legislature is to bar National Company Law Tribunal, Bench II, Hyderabad the institution of any application for the commencement of the CIRP in respect of a default which has occurred on or after 25 March 2020 for a period of six months, extendable up to one year as notified. The explanation which has been introduced to remove doubts places the matter beyond doubt by clarifying that the statutory provision shall not apply to any default before 25 March 2020.

The tribunal also dealt with the issue of the service of demand notice. The Tribunal stated that the service of demand notice is a crucial procedural requirement under Section 8 of the IBC, read with Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The OC is required to send the demand notice in either Form 3 or Form 4. As the notice was sent to an incorrect address and was returned undelivered, it means the Corporate Debtor never received proper notice and Non-compliance with Rule 5 is a procedural irregularity that is fatal to the initiation of insolvency proceedings, as it has prevented the Corporate Debtor from responding or raising a valid dispute, which is a crucial right under the IBC framework. This procedural lapses in the service of the demand notice render the application under Section 9 of the IBC defective and non-maintainable.

As a result, the CIRP initiation under Section 9 of the IBC is untenable.

Case Title: M/s.Noveltech Feeds Private Limited v. M/s.Gold Chick Hatcheries & Foods Pvt Ltd

Case Number: Company Petition (IB) No. 202/9/HDB/2022

Tribunal: National Company Law Tribunal, Hyderabad

Coram: Sri Rajeev Bhardwaj, Hon'ble Member (Judicial) and Sri Sanjay Puri, Hon'ble Member (Technical)

Counsel/Parties present:

For the Petitioner: Mr. N.B.Sudarshan, Learned Counsel

For the Respondent: Mr. Rajgopal, Learned Counsel

Date of Judgement: 19.02.2025

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