NCLT Judgments: Determining Date of Default When No Payment Date is Mentioned in Invoice

In the complex world of insolvency proceedings under the Insolvency and Bankruptcy Code (IBC), 2016, establishing the date of default is crucial for operational creditors filing applications before the National Company Law Tribunal (NCLT). But what happens when an invoice is silent on the payment due date? This is a common scenario in commercial disputes, where NCLT judgements on date of default mutual understanding come into play.

Imagine issuing an invoice for goods or services supplied, only to find no explicit payment term mentioned. Does this ambiguity derail your insolvency petition? Generally, no. Courts and tribunals typically look beyond the invoice to mutual understanding, conduct of parties, or related agreements to pinpoint the default date. This blog post delves into key legal principles, NCLT precedents, and practical recommendations, drawing from established rulings. Note: This is general information and not specific legal advice. Consult a qualified lawyer for your case.

The Core Legal Issue: Absence of Specific Payment Date

The question at hand is straightforward yet pivotal: NCLT Judgement on Date of Default Mutual Understanding when no Date of Payment is Mentioned in Invoice. Without a clear due date, creditors risk challenges on limitation periods or the very existence of default, as NCLT emphasizes proving default before admitting applications. 2018 0 Supreme(UK) 22

Under Section 3(12) of the IBC, 'default' occurs when the corporate debtor fails to pay a debt due. But when is it 'due'? NCLT rulings clarify that silence in the invoice does not preclude determination; instead, tribunals infer from:- Mutual understanding or party conduct.- Acknowledgments of debt.- Contractual arrangements like Memorandums of Understanding (MoUs).

Kanodia Technoplast Limited vs A.P. Trading Company - Delhi (2022)

Legal Principles from NCLT and Appellate Tribunals

NCLT and the National Company Law Appellate Tribunal (NCLAT) adopt a pragmatic approach. When an invoice lacks a payment date, the focus shifts to implicit indicators:

1. Mutual Understanding and MoU Terms: If parties have an MoU specifying payment schedules, the default date aligns with the due date therein, even sans invoice mention. For instance, invoices raised prior to entering into the Memorandum of Understanding, for arriving at the date of default. 2024 Supreme(Online)(NCLT) 4090

2. Acknowledgment of Debt: Letters, credit memos, or correspondence can establish the date. Tribunals hold that the default date can be reasonably inferred from the earliest acknowledgment or the agreed schedule for payments. 2022 0 Supreme(SC) 794

3. Conduct and Correspondence: Subsequent interactions often reveal when payment was expected. In running accounts, default ties to the first unpaid instance, like the last default was committed on 11.05.2017, wherein payment against invoice dated 10.02.2017... was defaulted.

   E.I DUPONT INDIA PVT LTD VS MILTECH INDUSTRIES PVT LTD - National Company Law Tribunal

NCLT stresses: Limitation starts from the 'date right to apply accrues,' requiring substantiation of default date, often via Form 3 details. Based on the above judgements it is evident that limitation starts from the date ‚right to apply accrues‛ the applicant couldn’t substantiate on date of default... 2023 Supreme(Online)(NCLT) 1765 2023 Supreme(Online)(NCLT) 1766

Judicial Precedents: How NCLT Determines Default Date

NCLT cases illustrate nuanced applications:

• Reliance on MoUs and Mutual Obligations: In one ruling, payment obligations stemmed from Clause 10 of an MoU, recording mutual obligations. Even without invoices, the MoU set the timeline.

  Pratibha Industries Limited VS Amrutha Constructions Private Limited - National Company Law Tribunal

• Invoice Due Dates When Specified: Where mentioned, like the due date of the Last invoice... was 14/04/2020, which is to be considered as the default date, it governs. 2024 Supreme(Online)(NCLT) 4015

• Challenges in Absence of Clarity: Tribunals reject arbitrary dates. The Operational Creditor has... arbitrarily mentioned the date of default as regards certain invoices to be 28.12.2022... Subsequent mutual understanding can recalibrate. 2024 Supreme(Online)(NCLT) 4090

• Running Accounts and First Default: For ongoing dealings, default has been occurring since 10.08.2016 when the payment against the first invoice... dated 12.05.2016.

  E.I DUPONT INDIA PVT LTD VS MILTECH INDUSTRIES PVT LTD - National Company Law Tribunal

  The first invoice's default date, like 26th September, marks the start. 2024 Supreme(Online)(NCLT) 2604

Multiple precedents affirm: Without explicit dates in invoices or ledgers, default isn't presumed from issuance alone. Courts consider the date when the debt becomes due and payable, often relying on contractual terms, mutual understanding, or subsequent correspondence. 2023 Supreme(Online)(NCLT) 1353 2023 Supreme(Online)(NCLT) 1230 2023 Supreme(Online)(NCLT) 3203

Even in tax contexts, analogous principles apply: when is the 'date of receipt of payment' where no tax invoice is issued... the earlier of (i) the date on which the payment is entered in the books... 2021 0 Supreme(Bom) 975

Limitation Periods and Evidence Requirements

Limitation under IBC aligns with the Limitation Act, 1963. No acknowledgment? Proceedings may fail: neither any other date of default has been stated... nor any suggestion about any acknowledgement. 2020 5 Supreme 159

Where agreements specify, like the agreement spells out the date when the payment is due, Article 55 applies. 2018 0 Supreme(Del) 2354 Or invoices noting due date for payment of invoice was 2nd March 2012. 2018 0 Supreme(Guj) 678

Key Evidence to Gather:- MoUs or settlement agreements.

Kanodia Technoplast Limited vs A.P. Trading Company - Delhi (2022)

Practical Recommendations for Creditors

To avoid pitfalls:- Document Explicitly: Always include payment terms in invoices and agreements.- Preserve Records: Collate MoUs, emails, and ledgers proving mutual understanding.- Substantiate in Petitions: Clearly state default date in Form 3 with supporting rationale.- Anticipate Disputes: In running accounts, track first default meticulously.

NCLT favors well-evidenced claims, ensuring a comprehensive and legally sound determination of the default date. 2018 0 Supreme(UK) 22

Conclusion and Key Takeaways

NCLT jurisprudence confirms: No explicit payment date in an invoice does not bar establishing default. Rely on mutual understanding, MoUs, acknowledgments, or conduct to infer the date when debt became due and unpaid. This approach upholds IBC's objective of timely resolutions while safeguarding against unsubstantiated claims.

Key Takeaways:- Default date inferred from MoUs, acknowledgments, or correspondence when invoice silent.

Kanodia Technoplast Limited vs A.P. Trading Company - Delhi (2022)

Stay informed on evolving precedents. For tailored guidance, engage insolvency experts.