Summary of the decision in the case of Thakaran Web Innovations Pvt. Ltd. v. Cyriac Njavally

In the recent decision issued by the National Company Law Tribunal, Kochi Bench in the case of Thakaran Web Innovations Pvt. Ltd. v. Cyriac Njavally: IBA/34/KOB/2020 it has been held that the Notification dated 24.03.2020, which raised the minimum default amount for the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC 2016) to apply, shall not be applicable to defaults committed prior to 24.03.2020.

Background

Prior to 24.03.2020, the threshold/minimum amount of default amount for

initiation of Insolvency resolution proceedings under the IBC 2016 against the creditor by a debtor was prescribed as Rs. 1,00,000. However, in light of the Covid -19 pandemic and the subsequent lockdown imposed by the Government of India, the Indian economy suffered. Hence, taking into consideration these circumstances, the Government issued a Notification dated 24.03.2020 on account of which subsequent to 24.03.2020, the minimum default amount for filing a petition for initiation of insolvency proceedings has been increased to Rs. 1 crore.

Hence, issue arose whether the Notification dated 24.03.2020 would also be applicable to cases where the creditor committed default prior to 24.03.2020 but the application for initiation of insolvency proceedings was filed subsequent to 24.03.2020 before the National Company Law Tribunal.

Facts

  • The debt of Rs. 31,33,595 from Cyriac Njavally (the Debtor) to Thakaran Web Innovations Pvt. Ltd. (the Creditor) had become due on 06.07.2019.
  • Thereafter, the Creditor issued a Demand Notice dated 25.02.2020 in Form 3 under the Insolvency regulations demanding the payment of outstanding debt of Rs. 31,33,595.
  • However, the Debtor did not give a reply raising any dispute within the stipulated period of ten days from 25.02.2020.
  • After expiry of the stipulated period of 10 days u/s. 8 of the IBC, the Creditor filed the application after waiting for 10 days. However, the application was filed after 24.03.2020 ie after the Notification prescribing the minimum default amount of Rs. 1 crore for initiation of insolvency proceedings had been issued.
  • Hence, in the proceedings before the NCLT, it was contended by the Creditor that after 24.03.2020, an application filed for initiation of insolvency proceedings where the minimum default amount was less than Rs. 1 crore could not be entertained by the NCLT.

Decision of the Tribunal

  • The Tribunal placed reliance on the decision of the Supreme Court in the case of New India Co. Ltd. v. Shanti Mishra: 1976 SCR (2) 266.
  • The Notification dated 24.03.2020 does not save the Corporate Debtor from initiation of insolvency proceedings, especially in cases where defaults towards creditors have taken place before the pandemic and the resultant financial crisis.
  • If the intention of the legislature was to provide blanket protection to Corporate Debtors from initiation of insolvency proceedings, irrespective of when or what extent the default was committed, then the same should have been done through a legislative amendment and mere issuance of the Notification dated 24.03.2020 would not suffice.

Our view

  • The notification dated 24.03.2020 by which the minimum amount of default for the purpose of pecuniary jurisdiction of the Tribunal was changed from Rupees One Lakh to Rupees One Crore operates prospectively and has no application to the cause of action that has arisen before the date of the notification.
  • The Creditor gets the right to trigger the ‘Corporate Insolvency Resolution Process’ on the occurrence of the date of default and such right, being a substantive right, cannot be withdrawn by virtue of the Notification dated 24.03.2020.
  • A view may also be taken the Section 6(C) of the General Clauses Act, 1897 clearly saves the right accrued to the Creditor under the IBC and saves its right to file proceedings under section 9 of the Code before the Tribunal, even in cases where the default is committed prior to 24.03.2020 and the default amount is less than Rs. 1 crore.

Hence, in our view, the NCLT has rightly held that Notification dated 24.03.2020 cannot apply to cases where the default amount is less than Rs. 1 crore, where such default occurred prior to 24.03.2020.

Author

Kunal Gokhale , Advocate

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