Even Without Plea, NCLT Kochi Examines Covid-19 Suspension Bar, Rejects CIRP Pleas

Holding that the statutory Covid-period bar under the Insolvency and Bankruptcy Code must be examined even in the absence of a specific defence, the NCLT Kochi Bench dismissed two insolvency petitions against KKR Products and Marketing Private Limited.

The tribunal found that the alleged defaults arose during the pandemic suspension period (Section 10A)

A coram of Judicial Member Vinay Goel examined the applicability of the statutory bar under Section 10A of the IBC even though no formal defence invoking the provision had been raised by the corporate debtor.

Two petitions seeking initiation of insolvency proceedings against KKR Products and Marketing Private Limited were filed before the NCLT, by Lakshmi Venkateshwara Traders (LVT) and RS Melgiri & Company (RMC).

LVT claimed a default of Rs 2.36 crore, including a principal outstanding of Rs.1.49 crore along with interest. It alleged that despite supply of goods and issuance of invoices, the company failed to make payment. RMC claimed a default of Rs. 13.16 crore, comprising a principal sum of Rs. 4.06 crore along with interest. It stated that several cheques issued by the company were dishonoured for insufficiency of funds.

The company opposed the petitions, contending that they were not maintainable and were barred by limitation and involved disputed claims. It further argued that the IBC could not be invoked as a debt recovery mechanism.

The tribunal noted that certain invoices forming the basis of both petitions were issued during the Section 10A protected period and considered whether, in the absence of a formal and specific defence raised by the company on that ground, the issue could nevertheless be examined.

Observing that insolvency proceedings have an in rem effect, the Tribunal held:

“Considering the vital implications of the IBC on the Corporate Debtor, and it's in rem effect, this Adjudicating Authority is of the opinion that mere silence, laches, ignorance, lack of knowledge, or inaction on the part of the Respondent would not preclude this Adjudicating Authority from examining the merits of the case, including whether the petition has been filed in conformity with the provisions of the IBC, 2016.”

It observed that all the invoices were issued during the period covered by Section 10A and the alleged defaults also arose within that period.

“Subsequent payments made by the Corporate Debtor do not, in any manner, change or shift the original date of default. “ it held

The tribunal further held that both the date of default and the invoices fell squarely within the Section 10A protected period, thereby attracting the statutory bar. It further observed that once the amounts covered under Section 10A were excluded, the petitions became untenable.

However, the tribunal clarified that dismissal of the petitions would not absolve the company of its liability to pay the dues, if any.

Accordingly, the petitions were dismissed.

For Petitioners: CS Naman G Joshi

For Respondent: Advocate Sreekala Krishnadas