Winsome Textile Industries Limited Vs Orient Craft Limited

Dr. P.S.N. Prasad, Member (Judicial)

The present petition is filed, under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for brevity ‘IBC’ / ‘Code’) read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rule, 2016, on behalf of M/s Winsome Textile Industries Limited, (for brevity ‘Operational Creditor’ / ‘Petitioner’), by its Deputy General Manager (Legal) and Company Secretary, Mr. Videshwar Sharma with a prayer to initiate Corporate Insolvency Resolution Process (CIRP) in case of M/s Orient Craft Limited (for brevity ‘Corporate Debtor’ / ‘Respondent’) for defaulting the payment of outstanding amount of Rs.1,66,87,863.89/- along with interest @18% per annum i.e. an amount of Rs.27,57,102/- Total amount in Rs.1,94,44,965.89/-

The Corporate Debtor, namely, M/s Orient Craft Limited, is a Company incorporated on 28.02.1978 under the provisions of Companies Act, 1956 with CIN No. U74899HR1978PLC079816 with its registered office at 7-D, Maruti Industrial Complex, Sector 18, Udyog Vihar, Gurgaon, HR-122015. The copy of master data of the corporate debtor is attached with the main petition and marked as Annexure-A-2 confirms the address of the corporate debtor. Hence, the territorial jurisdiction lies with this Adjudicating Authority.

The facts of the case, briefly, as stated in the petition are that the operational creditor is in the business of the manufacturer of yarn and knitted fabric at its unit and registered office since the year 1982 and has also been carrying out job work for a number of industries and units particularly within the states of Punjab, Haryana and Himachal. The operational creditor has 1,10,000 spindles installed at its unit at Baddi and also has a knitting unit of 8Mt/PD installed at its plant at Baddi itself. Besides, it has also been supplying the finished goods of yarn and fabrics to the number of units across the country and has also an exporter of the yarns and fabrics across number of countries across the world.

The Corporate Debtor Orient Craft Limited, has unit in the name and style of Orient Craft Limited unit at # 9-13, Sector -37, Udyog Vihar, Phase-6, Near Village Khandsa, Gurgaon- for which sale of CTN PRALLEL YARN, SPANDEX PARALLEL, YARN, COTTON & KNITTED FABRIC, SOLID MELANGE was carried out by the operational creditor.

Operational creditor has been supplying knitted fabric and different types of yarn, to the corporate debtor at its unit at Gurgaon since the last 15-20 years. As per the structured practice between the parties, the operational creditor delivered the high valued goods and products at the plant and unit of the Corporate Debtor at Gurgaon and monthly sales are being conducted and recorded by the operational creditor of the goods supplied to the corporate debtor, whereof payments were to be made generally within next 30 days from the date of invoice.

The arrangement continued in good faith for the last 15-20 years and as such payments against the same were also being made regularly and from time to time duly credited in the accounts of the corporate debtor. The outstanding balance is of Rs.1,66,87,863.89/- representing the value of goods sold out on behalf of the operational debtor plus interest thereon up to the date of actual payment, is payable to the operational creditor.

The Operational creditor has furnished invoices numbering 188 for a total sum of Rs.16687863.89/- which remains unadjusted in the ledgers of the operational creditor against the payment to be received from the corporate debtor. (Annexure A-5 of petition). The year wise breakup, as given in the petition, is reproduced as below:

Orient Croft Limited

TYPE

YEAR

AMOUNT

INVOICE

INVOICE 2018-19

188618.29

INVOICE 2019-20

493688.52

INVOICE 2020-21

13379819.74

INVOICE 2021-22

2625539.34

TOTAL OF OCL

16687863.89

The operational creditor has stated in the section 9 application that regular follow up was made for payments by the corporate debtor, however there has been no response, since the last payment on 18.12.2021.

Thereafter, the operational creditor has served the corporate debtor with notice under Section 8(1) of IBC, 2016 via speed-post dated 24.02.2022 in form 3 under Rule5(1)(a) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rule, 2016 (Annexure 6 to the section 9 application), which was duly delivered to the corporate debtor on 12.03.2022 (Annexure A-8) and also by e-mail dated 25.02.2022. It transpires that the corporate debtor has not replied to the said notice.

It is submitted by the petitioner in Form 5, Part IV that the amount claimed to be in default is Rs.1,66,87,863.89/- against the outstanding invoices for the financial year 2018-19 till 2021-22 along with interest @18% per annum with monthly rest i.e. an amount of Rs.27,57,102/- calculated up to 28.02.2022; total amount in Rs.1,94,44,965.89/-

Reply of the corporate debtor

On receipt of the notice issued by this Adjudicating Authority, the Corporate Debtor has appeared through its counsel and filed its reply dated 29.03.2023 vide which corporate debtor has denied the averments made by the operational creditor in his section 9 application. The written submissions were also filed by the corporate debtor dated 08.09.2023. Further the corporate debtor has challenged the maintainability of the petition. It is stated in the reply that the alleged default amount of Rs.1,33,79,819.89/- taken place during the period 2020-2021, which is otherwise barred by section 10A of the code. The rest of the alleged default for three years amounts to Rs.33,08,044/- does not meet the threshold requirement of one crore rupees as per applicable law. It is further stated that section 10 A of the code, specifically bars that no application for initiation of CIRP of a corporate debtor shall ever be filed for the default between March 24, 2020 to March 31, 2021. The corporate debtor has also relied on decision by Hon’ble NCLAT in the matter of Mr. Anil Kaushal v. M/s Colliers International (India) CA (AT) (Ins.) No. 448 of 2022.

It is further submitted that it is undisputed fact that the present application was filed on 16.03.2022 after the notification no. S.O 1205 (E) dated 24.03.2020 issued by the Ministry of Corporate Affairs. As per this notification, the minimum threshold amount of default was increased from one lakh to one crore rupees. This threshold limit will be applicable for application filed u/s 7 or 9 on or after 24.03.2020. Therefore, it is also applicable in the present application. The corporate debtor also relied on the judgement of Hon’ble NCLAT in Jumbo Paper Products vs. Hansraj Agrofresh Pvt. Ltd. CA (AT) (Ins) No. 813 of 2021.

Rejoinder of the Operational creditor

The Operational creditor in its rejoinder dated 07.08.2023 stated that the respondent has misinterpreted the judgement by Hon’ble NCLAT in Jumbo Paper. It is submitted that the judgement speaks of the threshold of Rs.1 crore limit for all applications filed on or after 24.03.2020 even for debts earlier to 24.03.2020. The same only deals with section 4 of the code relating to the threshold limit of Rs.1 crore and doesn’t deal with the appeal of excluding period 25.03.2020 till 24.03.2021 as per section 10 A of the code. It is submitted that the said judgment does not provide for any exclusion of the debt during the threshold period. Reliance was also placed on NCLAT judgement in the matter of Vishal Agarwal Erstwhile Director of Gagan I-Land Township Pvt. Ltd. v. ICICI Prudential Real Estate AIF-I & Anr. CA(AT) (Ins.) No. 1016 of 2022.

It is further submitted by the operational creditor that the corporate debtor has clearly admitted the fact as to the demand notice dated 24.2.2022 and the outstanding liability of Rs.1,66,87,863.89/- is existing and payable by the corporate debtor.

Analysis and findings

We have heard the arguments advanced by the learned counsel for the Operational creditor and also the Counsel for Corporate debtor and have also perused the records and written submissions made by the parties.

The prime contention of the Corporate debtor is that certain invoices are barred by Section 10A of IBC, 2016 and if those invoices are excluded, the present Application would not be able to meet the minimum threshold limit of Rs.1 Crore.

Section 10A provides for suspension of initiation of corporate insolvency resolution process as under:

“10A. Notwithstanding anything contained in sections 7, 9 and 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf:

Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period.

Explanation. – For the removal of doubts, it is hereby clarified that the provisions of this section shall not apply to any default committed under the said sections before 25th March, 2020.”

This provision was subsequently extended to 24.03.2021 vide notification No. S.O. 4638(E) dated 22.12.2020 issued by the MCA. Therefore, the period under Section 10A would be from 25.03.2020 to 24.03.2021. Thus any default occurring during the above period, no application shall ever be filed under section 7, 9 and 10 of IBC, 2016.

The Hon’ble NCLAT in the case of Plus Corporate Ventures Pvt. Ltd Vs Transnational Growth Fund Ltd, Company Appeal (AT) (Insolvency) No. 1270 of 2022 held that monies which fell in default during the section 10A period, cannot be clubbed with monies falling in default beyond such period, to determine threshold in terms of section 4 of the IBC. Hence, the appeal filed was dismissed by the Hon’ble NCLAT.

In Ramesh Kymal v. Siemens Gamesa Renewable Power (P) Ltd., (2021) 3 SCC 224, the Hon’ble SC while dismissing section 9 appeal in para 23 has clarified-

“23 Adopting the construction which has been suggested by the appellant would defeat the object and intent underlying the insertion of Section 10A. The onset of the Covid-19 pandemic is a cataclysmic event which has serious repercussions on the financial health of corporate enterprises. The Ordinance and the Amending Act enacted by Parliament, adopt 25 March 2020 as the cut-off date. The proviso to Section 10A stipulates that "no application shall ever be filed" for the initiation of the CIRP "for the said default occurring during the said period”. The expression "shall ever be filed" is a clear indicator that the intent of the legislature is to bar 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 substantive part of Section 10A is to be construed harmoniously with the first proviso and the explanation. Reading the provisions together, it is evident that Parliament intended to impose a bar on the filing of applications for the commencement of the CIRP in respect of a corporate debtor for a default occurring on or after 25 March 2020; the embargo remaining in force for a period of six months, extendable to one year. Acceptance of the submission of the appellant would defeat the very purpose and object underlying the insertion of Section 10A. For, it would leave a whole class of corporate debtors where the default has occurred on or after 25 March 2020 outside the pale of protection because the application was filed before 5 June 2020.”

In the above para, it has been held that there should be harmonious construction of the substantive part of section 10A with the first proviso and the explanation. Hence, Acceptance of the submission of the appellant would defeat the very purpose and object underlying the insertion of Section 10A.

After excluding the invoices, whose due dates are falling under the Section 10A period, the amount of default would be less than one crore. Therefore, the petition is not maintainable.

The operational creditor had issued section 8(1) demand notice under the provisions of IBC, 2016 on February 25, 2022 and the section 9 application was filed on March 16, 2022. Both the notice under Section 8(1) and application under section 9 are not maintainable as the notice as well as section 9 application have included those invoices which are falling under section 10A period.

Further,  this  Adjudicating  Authority  placed  its  reliance  on  the  aforesaid decision of Hon’ble NCLAT and Hon’ble Supreme Court. Hence the present section 9 application is not maintainable. Therefore, the same is hereby dismissed without cost.