Insolvency and BankruptcyNCLATRulingsTribunal & Appellate

NCLAT: Application filed prior to I&B Code,2016 coming into force cannot be barred by limitation

Black Pearl Hotel Pvt. Ltd. vs. Planet M Retail Limited

NCLAT while setting aside NCLT, Mumbai order held that as Insolvency and Bankruptcy Code, 2016 (‘Code’) came into force with effect from December 2016. Hence, the right to apply u/s 9 of Code can be accrued on or after 01 December 2016, therefore, the application filed much prior cannot be barred by limitation.

In the present case, Black Pearl Hotel Pvt. Ltd. (‘operational creditor’) had filed an application for initiation of corporate insolvency resolution process before NCLT against Planet M Retail Limited (‘operational debtor’) for not paying monthly conducting fees. The operational creditor had entered into Business Conducting agreement with Planet M for conducting and managing the business of running a music concept store in consideration of which, Corporate debtor was liable to pay monthly conducting fees. Subsequently in 2009, on request of Planet M, operational creditor had reduced the monthly minimum guaranteed fee as the business venture was not making profit.  However, since October 2011, Planet M failed to pay the conducting fees, therefore, operational creditor terminated the agreement and later issued notices u/s 8 (1) of the Code. However, the respondent denied the claim on the grounds that petitioner has not duly performed its duty mentioned in terms of the agreement.

NCLT Mumbai, had dismissed the application u/s 9 on the grounds that the application was barred by limitation. Thereafter NCLT also observed that operational creditor had filed Arbitration Application for the appointed of Arbitration u/s 11 of Arbitration and Conciliations Act. Hence, NCLT held that operational creditor would have obtained liberty to proceed against the corporate debtor but it was not the same in the present case. In addition, NCLT stated after the last payment in September 2011 there was neither an acknowledgement of liability nor any payment by the corporate debtor. Hence, the whole debit as claimed by the financial creditor was time-barred.

However, NCLAT has set aside the Tribunal order and held that NCLT Mumbai Bench was not correct in dismissing the application holding it was barred by limitation. NCLAT further stated that,

I&B Code came into force with effect from 1 December, 2016. Therefore, right to apply under Code accrues only on after1 December, 2016 and not before the said date. As the right to apply u/s 9 of the Code accrued to appellant since  1 December, 2016, the application filed much prior to 3 years, the said application cannot be held to be barred by limitation.”

Thereafter, NCLAT noticed that operational creditor had specifically filed an application to withdrew the application u/s 9 of the Arbitration and Conciliations Act. In order to expressly reserving liberty to institute fresh proceeding for interim relief. Hence, NCLAT held that there was no arbitral dispute pending and the application for initiating the corporate insolvency resolution process cannot be rejected.

Accordingly, NCLAT has set aside the order passed by NCLT.

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