A two-Judge Bench of the Supreme Court comprising Hon’ble Justice A.S. Bopanna and Hon’ble Justice J.B. Pardiwala has recently delivered a significant judgment in the case of M/s Next Education India Pvt. Ltd. v M/s K12 Techno Services Pvt. Ltd.¹, clarifying the treatment of time-barred invoices in petitions filed under Section 9² of the Insolvency and Bankruptcy Code, 2016 (“IBC”).

The case revolved around a dispute between M/s Next Education India Pvt. Ltd. and M/s K12 Techno Services Pvt. Ltd. over unpaid invoices, some of which were time-barred as per the Limitation Act, 1963. M/s Next Education India Pvt. Ltd. had filed a petition before the National Company Law Tribunal (“NCLT”) under Section 9 of the IBC, seeking initiation of insolvency proceedings against M/s K12 Techno Services Pvt. Ltd. for the unpaid operational debts, relying on several invoices, including some that were time-barred. However, the NCLT had dismissed the petition, citing the time-barred invoices as a ground for rejection. M/s Next Education India Pvt. Ltd. appealed the decision to the National Company Law Appellate Tribunal (“NCLAT”), which upheld the NCLT's decision. Aggrieved by it, the case was further appealed before the Hon’ble Supreme Court.

The key issue before the Supreme Court was whether a petition filed under Section 9 of the IBC, which allows for the initiation of insolvency proceedings against a debtor for unpaid operational debts, can include time-barred invoices.

In its judgment, the Supreme Court clarified that when a petition under Section 9 of the IBC is filed based on several invoices, and some of the invoices are time-barred, the NCLT must consider the remaining invoices that are not time-barred. The Court held that the Limitation Act only bars the remedy to recover such debts, but not the existence of the debt itself. Therefore, the mere fact that some of the invoices are time-barred should not render the entire petition bad in law.

The Supreme Court's decision has significant implications for the resolution of insolvency cases in India. The Court further emphasized that the NCLT should provide an opportunity to the parties to adduce evidence and make submissions in respect of the time-barred invoices before arriving at a decision. This underscores the importance of following the principles of natural justice and due process in insolvency proceedings, where parties should be given a reasonable opportunity to present their case and contest any objections, including those related to time-barred debts.

The Supreme Court's decision upholds the spirit of the IBC and ensures that creditors are not deprived of their right to seek resolution of their claims, even if some of the invoices are time-barred. The judgment also aligns with the underlying principles of the IBC, which aims to promote the resolution of insolvency cases and maximize the value of the debtor's assets. Excluding time-barred invoices from the purview of Section 9 would have limited the petitioner's ability to seek a resolution for all its outstanding debts and may have resulted in the loss of valuable assets or opportunities for recovery.

In conclusion, the decision of Hon’ble Supreme Court reinforces the essence of the IBC, safeguarding creditors' entitlement to pursue resolution of their claims, irrespective of the time-barred status of certain invoices.

By - Muskan Maheshwari