IBC | Section 9 Petition Not To Be Dismissed If Few Invoices Are Time Barred But Remaining Invoices Are Not ; Supreme Court

Background Facts

M/S Next Education India Pvt. Ltd. (“Appellant/Operational Creditor”) had provided Digital Classroom Solution Services to M/S K12 Techno Services Pvt. Ltd. (“Respondent/Corporate Debtor”) between 12.03.2011 and 30.06.2017. In view of the services rendered, the Operational Creditor had raised 187 different invoices which were not fully paid by the Corporate Debtor.

Therefore, the Operational Creditor filed a petition under Section 9 of Insolvency and Bankruptcy Code, 2016 (“IBC”) before the National Company Law Tribunal (“NCLT”), seeking to initiate Corporate Insolvency Resolution Process (“CIRP”) against Corporate Debtor.

The NCLT dismissed the petition for being barred by limitation while considering 12.03.2011 as the starting point of limitation. When the matter went in appeal before the National Company Law Appellate Tribunal (“NCLAT”), the appeal was dismissed on similar grounds vide an order dated 17.03.2021.

The Operational Creditor filed an appeal before the Supreme Court challenging the NCLAT order of dismissal. The Corporate Debtor argued that it is a commercially viable going concern and has already paid Rs. 4.5 Crores to the Operational Creditor. Thus, there is no occasion to declare the Corporate Debtor as insolvent.

Supreme Court Verdict

On the issue of the petition being barred by limitation, the Bench observed that the NCLT ought to have considered the subsequent invoices of preceding three years from the date on which petition under Section 9 of IBC was filed. It has been observed as under:

“The NCLT considering the starting point of limitation as 12.03.2011 held that the claim is barred by limitation. However, the NCLT did not take into consideration the subsequent invoices at least preceding three years from the date of filing of Section 9 application, which ought to have been considered. Under the circumstances, the NCLT ought to have considered the invoices at least for the period preceding three years from the date of the application under Section 9, rather than considering the starting point of limitation as 12.03.2011. Under the circumstances, the order(s) passed by the NCLT and affirmed by the NCLAT are unsustainable.”

The Bench allowed the appeal and has set aside the orders of dismissal passed by NCLT and NCLAT. The petition under Section 9 of IBC has been remitted back to the NCLT for fresh consideration upon law and merits. The Bench granted further liberty that all the contentions which may be available to the parties may remain open, including the contention that the Corporate Debtor is economically and commercially sound going concern and hence not required to be declared as insolvent.

Case Title: M/S Next Education India Pvt. Ltd. v M/S K12 Techno Services Pvt. Ltd.

Citation: 2023 LiveLaw (SC) 270

Insolvency and Bankruptcy Code 2016- Section 9- when a petition under Section 9 of IBC is filed based on several invoices and some of the invoices are time barred, then NCLT must consider the remaining invoices which are within limitation and whether they cross the minimum threshold of Rs. 1 Crore. The Section 9 petition cannot be dismissed on the sole ground that some of the invoices are time barred.

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