NCLAT in a recent judgement on 11th September 2019 threw light upon what constitutes a pre-existing dispute under Section 9 of the Insolvency and Bankruptcy Code 2016 (IBC). The main issue in the case was whether in absence of existence of an arbitration clause or any mode of settlement, a dispute can be held to be a pre-existing dispute.
Another issue in this case was whether the time of limitation started from the date mentioned on the invoice or on the date of denial of amount by Corporate Debtor. The creditor (Trilocite Industries Ltd) in the present case filed a suit for imitation of insolvency proceedings against the corporate debtor (HBN Homes Colonisers Pvt Ltd ). The suit was filed under Section 9 of the IBC 2016. The NCLT accepted the suit and initiated insolvency proceedings against HBN Homes Colonisers Pvt Ltd. The corporate debtor thus filed for an appeal to the NCLAT.
The main submission of the Corporate Creditor was that Section 9 of the IBC 2016 would be inapplicable to the present scenario as the date on invoices was 2013 and hence comes under the ambit of the Limitation Act of 1881. The creditor however refuted this claim by asserting that in the year 2015 the corporate debtor replied to a legal notice for payback of dues. The creditors submitted that the date of denial is the starting point for the Limitation Act of 1881.
To clarify in the instant case, the Court held that the submission put forth by the creditor was valid and hence the applicability of the mandate of the Limitation Act comes into play upon the date of denial of dues that is May 20th 2015. The Court also shed light in the distinction between claims of an operational creditor and financial creditor due to the conflicting nature of the existing legal provisions of Section 7 and Section 8(2) of the IBC 2016. Further the Court held that there was no pre-existing dispute in the instant case and dismissed the appeal.