IBC Notification on enhanced minimum threshold of Rs 1 crore not for cases where default happens before pandemic: NCLT

The National Company Law Tribunal, Kochi Bench has said that the March Notification which enhanced the minimum threshold of Rs 1 crore for initiation on insolvency proceedings does not save a Corporate Debtor when the default has taken place before the pandemic and the resultant financial crisis (M/s Tharakan Web Innovations Pvt Ltd vs Cyriac Njavally)..The order was passed by a Member (Judicial) Ashok Kumar Borah while dealing with with an application by a Corporate Debtor seeking a declaration that the insolvency plea against it under Section 9 Insolvency & Bankruptcy Code (IBC) was not maintainable in light of the March 24 Notification."..if the intention was to provide for a blanket protection to Corporate Debtors from being dragged to the NCLT irrespective of when or what extent a default has taken place, it would necessarily require a legislative amendment, and that a mere issuance of the notification would not suffice.", the NCLT stated..The Corporate Debtor had submitted that the insolvency plea was not maintainble on the ground that the default was of less than Rs 1 crore and the insolvency plea was filed only on September 25, 2020 which would be the date of initiation. .It was further stated that in view of the mandatory period of 10 days to raise objections, the application under Section 9 would not be maintainable on the date of filing i.e. March 7, 2020, as the demand notice was received by it only on March 2, 2020. .The Operational Creditor, on the other hand, said that the application was filed in September 2020 for a default that occurred before March 24, 2020. .It was said that the notification was a relief-oriented measure to protect Corporate Debtors from the deleterious impact of the Covid-19 pandemic upon their businesses and did not grant any general relaxation or waiver. .Since the notification was prospective in nature, it could not deprive him from filing an application under Section 9 to initiate Corporate Insolvency Resolution Process against a defaulting Corporate Debtor for a debt that occurred prior to it, it was added. .In view of the order passed by the National Company Law Appellate Tribunal in Madhusudan Tantia vs Amit Choraria and the Supreme Court in New India Co Ltd vs Smt Shanti Misra, the NCLT opined that the Corporate Debtor could not be given any benefit of the notification as it would be contrary to the intention of the executive in exercise of its power of delegated legislation..It said,."On a perusal of the documents placed on record, it is seen that the Notification dated 24.03.2020 does not save the Applicant/ Corporate Debtor from the initiation of insolvency especially in cases where defaults towards creditors have taken place before the pandemic and the resultant financial crisis.".The NCLT further noted, ."In the instant application filed under Section 9 of IBC, the debt has become due on 06.07.2019. That on 25.02.2020, the Demand Notice in Form 3 under Rule 5 of the Insolvency and Bankruptcy Code, 2016 demanding payment of Rs. 31,33,595/- (Rupees Thirty-One Lakhs Thirty-Three Thousand Five Hundred and Ninety-Five Only) was sent to the Corporate Debtor at its Registered Office through speed post. However, no reply raising any dispute has been received by the Respondent/Operational Creditor within the stipulated period of ten days from 25.02.2020.".Observing that the insolvency application was filed 10 days after a demand notice was sent, the NCLT held that the contentions of the Corporate Debtor "has no legs to stand".."Therefore, since the application IBA/34/KOB/2020 has been filed by the Applicant after exhausting the remedy by issuing the statutory notice, the application is in order," the NCLT concluded. .The application was accordingly dismissed. .Senior Advocate Joseph Kodianthara appeared for the Corporate Debtor. Advocate Akhil Suresh appeared for the Operational Creditor. .[Read Order]