In a recent case, the Hyderabad bench of the National Company Law Tribunal ( NCLT ) while dismissing the petition under section 9 of Insolvency Bankruptcy Code ( IBC ), 2016, held that the default amount that falls within the Section 10-A period is excluded from the calculation of total outstanding debt.
The operating creditor, Noveltech Feeds Private Limited, who is involved in a disagreement over financial and contractual issues, has filed the petition. M/s.Gold Chick Hatcheries & Food Private Limited (Respondent/Corporate Debtor) and the petitioner, Noveltech Feeds Private Limited, had a contract pertaining to supply agreements, financial commitments, and business operations.
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The operational creditor raises invoices in accordance with the given commodities and deals in poultry feed products. For the period of 19.09.2021 to 31.03.2022, the Corporate Debtor failed to pay the sum of Rs. 1,29,03,363/- and interest of Rs. 18,02,845/- at a rate of 24%. The Operational Creditor served the demand notice dated May 24, 2022, after the Corporate Debtor failed to pay the outstanding amount. The Corporate Debtor failed to make the payment notwithstanding the warning, and the date of default was September 16, 2021.
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The Corporate Debtor argued that the notification required by Section 8 of the IBC was not delivered to the Corporate Debtor’s registered office. Additionally, there were no invoices, paperwork, etc. included with the notice. Additionally, the operational creditor provided subpar feed, which caused bird mortality and resultant losses for farmers. This had a direct impact on the corporate debtor’s operations. The Operational Creditor was made aware of this, but nothing had been done about it. The Corporate Debtor further asserted that Section 10-A of the IBC had been violated since the principal amount of Rs. 2,27,00,973/-had been increased against the bills from April 1, 2020, to January 5, 2021.
When making a decision regarding the claim, the tribunal addressed Section 10-A of the 2016 Insolvency and Bankruptcy Code. According to the tribunal, defaults committed between March 25, 2020, and March 25, 2021 are particularly exempt from the start of bankruptcy proceedings under Section 10-A of the IBC. Section 10-A of the Insolvency and Bankruptcy Code (IBC) has a clear and unequivocal legislative intent: defaults that take place between March 25, 2020, and March 25, 2021, cannot be the basis for initiating CIRP.
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The NCLT bench, which is made up of Members Sri Rajeev Bhardwaj (Judicial) and Sri Sanjay Puri (Technical), emphasized that the clause was put in place to help corporate borrowers amid the COVID-19 pandemic’s economic downturn. The entire amount of outstanding debt must therefore be calculated without including any defaults that occurred during this time. The majority of the invoices went into default during this time.
The application under Section 9 of the IBC is deemed faulty and non-maintainable due to procedural errors in the demand notice’s serving. Therefore, it is unacceptable to initiate CIRP under Section 9 of the IBC.
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