Payment Made During Pendency Of CIRP Application Cannot Be Considered For Calculating Threshold U/S 4 Of IBC: NCLAT New Delhi

Background of the Case

The appellant used to sell iron ore to the respondent, but the respondent failed to make the payment; hence, the appellant served the demand notice under Section 8 of the IBC for a default of Rs. 1,16,25,583. After that, the appellant filed the application under Section 9 of the IBC, seeking initiation of the CIRP against the corporate debtor.

The CIRP application was admitted, and the proceedings commenced. However, the respondent challenged the order before the appellate tribunal, alleging that the tribunal didn't grant it the opportunity of being heard. Hence, the appellate authority directed the tribunal to hear the matter afresh and to decide accordingly.

During the pendency of the proceedings before the tribunal, the appellant was informed via mail that the respondent had deposited Rs. 20 lakhs into the account of the appellant. The appellant contended that the amount of Rs. 20 lakh was deposited without its permission, and it is also willing to refund the said amount. However, the tribunal dismissed the Section 9 application on the ground of lack of threshold.

Contention of the Parties Before NCLAT

The appellant argued that Section 5(11) of the IBC lays down that the date of initiation of the CIRP is the date on which application is made by the financial creditor or the operational creditor, and the date of admission of application is considered to be the insolvency commencement date as per Section 5(12) of the IBC.

The appellant relied on the Hon'ble Supreme Court's ruling in the case of Rajamundry Electric Supply Corporation Limited Vs. A Nageshwara Rao & Ors., (1995) 2 SCR 1066, Manish Kumar Vs. Union of India, (2021) 5 SCC 1 and a decision of the NCLAT in the case of Hyline Medoconz Pvt. Ltd. Vs. Anandaloke Medical Centre Pvt. Ltd., CA (AT) (Ins) No. 1036 of 2022 and submitted that the threshold has to be considered at the time of filing of the application and not at the time of the admission.

Appellant contended that the Section 9 application had crossed the threshold of Rs. 1 Cr., however, during the pendency of the application, the respondent made the payment of Rs. 20 lakhs in order to reduce the due amount, which should not have any impact on the application as it was filed after crossing the threshold.

Per contra, the respondent submitted that the threshold should be met at the time of admission of the application and not at the time of filing of the application. It further submitted that the judgments relied upon by the appellant cannot be applied to the facts of this case.

Judgment of the NCLAT

The bench observed that the judgments relied on by the appellant are applicable to the present facts and squarely cover the case of the appellant. The bench noted that the adjudicating authority has committed a patent error in dismissing the application.

The bench allowed the appeal by setting aside the impugned order and restored the Section 9 application. It remanded the matter back to the tribunal to decide the Section 9 application in accordance with the law.

Case Title: Devika Resources Pvt. Ltd. v. MAA Manasha Devi Alloys Pvt. Ltd.

Case Number: Comp. App. (AT) (Ins) No.938 of 2024 & I.A. No. 3418, 3419 of 2024

For Appellant: Mr. Akshay Goel, Mr. Kanishk Khetan, Mr. Harsh Jadon, Advocates

For Respondents: Mr. Shreyas Vaghe, Advocate.

Bench: Justice Rakesh Kumar Jain (Member-Judicial) and Naresh Salecha (Member-Technical)

Judgment Date: 14/05/2025

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