NCLAT Dismisses Insolvency Plea, Says Rs 1 Crore Debt Threshold Applies On Filing Date, Not Demand Notice Date

The National Company Law Appellate Tribunal (NCLAT) at Delhi has upheld the dismissal of a Section 9 insolvency plea against SBEC Sugar Limited, holding that the Rs 1 Crore threshold under Section 4 of the Insolvency and Bankruptcy Code must be satisfied on the date of filing the petition and not on the date of issuing the demand notice.

A bench of Judicial Member Justice N. Seshasayee and Technical Members Arun Baroka and Indevar Pandey dismissed an appeal filed by Mosco International Commodities Private Limited after finding that the operational debt had fallen below Rs 1 Crore on the initiation date, that is, the date the Section 9 CIRP plea was filed.

“The threshold limit for instituting a petition under Section 9 of IBC on the date of filing of such petition shall be Rs. 1 Crore or above and not the date of sending the demand notice under Section 8 of IBC,” the tribunal observed.

Mosco had paid an advance of over Rs 2,02,63,750 for procurement of molasses for the 2019–20 and 2020–21 seasons. After partial supply and cancellation of the sale order on 6 March 2021, it claimed refund of Rs 1,08,02,731.

Following issuance of a demand notice under Section 8 on 31 May 2022, the corporate debtor transferred Rs 13,13,886 towards the salvage value of molasses allegedly destroyed in a spontaneous combustion incident at its plant.

On the date of filing the CIRP plea on August 20, 2022, the outstanding amount stood at Rs 94,88,845, below the statutory threshold.

The appellant argued that the payment was made with mala fide intent to reduce the debt below Rs 1 crore and defeat insolvency proceedings. It also contended that interest at 24 percent per annum ought to be included to meet the threshold.

Rejecting the plea, the Appellate Tribunal held that interest could not be added in the absence of any contractual stipulation or documentary basis.

It recorded, “The Appellant is not justified in claiming interest at the rate of 24% per annum till the date of payment of the total amount of the debt as mentioned in Part IV of the Section 9 petition filed on account of the fact that there is no agreement between the Appellant and the Respondent for payment of interest on delay of refunding of advance money, if any.”

The Tribunal also found that disputes existed between the parties prior to the demand notice, including regulatory revocation of lifting permissions, cancellation of supply, and destruction of goods in the fire incident.

Noting that the proportionate salvage value had been accepted without protest, the bench observed, “since the material (molasses), allocated for supply to the Appellant herein got destroyed in a spontaneous combustion accident at the plant of the Respondent and the fact that the Respondent has already refunded to the Appellant, the proportionate salvage value of the molasses destroyed, which amount has been accepted by the Appellant without demur or protest, therefore, filing of the petition under Section 9 IBC before the NCLT as well as the present Appeal to us appears to be a clever afterthought to extract more money from the Respondent. The facts and circumstances of the case clearly indicate existence of pre-existing dispute.”

It concluded that since the operational debt was below Rs 1 Crore on the initiation date and a pre-existing dispute was evident, the Section 9 petition was not maintainable. The appeal was accordingly dismissed, with liberty to the operational creditor to pursue remedies before appropriate forums