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2018 (8) TMI 1876 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to pay the outstanding amounts - existence of default or not - the defense of the Corporate Debtor to stave off the Insolvency Resolution Process as sought to be unleashed by the Applicant, which primarily rests on the ground of a preexisting dispute prior to the filing of the application. HELD THAT - The registered office of corporate debtor is situated in New Delhi and therefore this Tribunal has jurisdiction to entertain and try this application - The amount of default exceeds ₹ 1,00,000/- as per the requirement under section 4 of the Code, 2016. Hence, this application is within the purview of section 9 of the IBC, 2016 - The default in payment of operational debt first became due and payable from the date of the invoice dated 05.12.2015 raised by the Applicant and further admission by corporate debtor when four cheques were issued in respect of the said debt alongwith the interest. Hence, the debt is not time barred. Although there is clear debt and default in payment of debt which is due and payable under the Code, 2016 but due to literal interpretation of section 11 of the Code, 2016, the Applicant herein is treated as Corporate Applicant as per the proviso to section 11 of the Code, 2016, and there is much needed clarification required as to whether corporate debtor undergoing corporate insolvency resolution process filing Application under section 9 of the Code, 2016 can file it in the capacity of Operational Creditor or Corporate Debtor/ Corporate Applicant for Corporate Debtor against the same or another corporate debtor. Form the wordings of the Code it is not manifested whether the intent of legislature was to debar the company who is undergoing CIRP, from enforcing its right to recover legal debt which is indispensable for the survival and revival of the company. The point raised by the Ld. Counsel for the applicant that company who is a corporate debtor, if is not allowed to recover its debt receivables which was the cause of its undergoing ICRP, and recovery of its debt being the only hope of such corporate debtor to come out of CIRP. Subsequently if not permitted can subtly lead to the fatal consequences of such corporate debtor. But in view of the clear bar as mentioned in Section 11 clarified with further explanation at the end of Section 11 and the inclusiveness Section 11 with respect to applicability of the said Section 11 to the entire Chapter II which includes corporate applicants under Section 7, 9 10. Thus, inspite of application being complete, the Application is to be rejected in terms of Section 9(5) (ii) Section 11 of IBC, 2016 - Application dismissed.
Issues Involved:
1. Jurisdiction and applicability of Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC). 2. Existence and proof of operational debt and default. 3. Authority and eligibility of the Resolution Professional to file the application. 4. Interpretation of Section 11 of IBC regarding the prohibition on filing applications by corporate debtors undergoing CIRP. 5. Definition and existence of a pre-existing dispute. 6. Compliance with procedural requirements under IBC. Issue-wise Detailed Analysis: 1. Jurisdiction and Applicability of Section 9 of IBC: The application was filed under Section 9 of IBC by the Resolution Professional of M/s Mandhana Industries Limited, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against M/s Instyle Exports Private Limited. The Tribunal confirmed its jurisdiction based on the registered office of the corporate debtor being situated in New Delhi. 2. Existence and Proof of Operational Debt and Default: The applicant claimed an outstanding operational debt of ?24,34,054/- (?17,91,612/- principal and ?6,42,442/- interest). The debt arose from unpaid invoices for fabric supplies between November 2015 and December 2016. The corporate debtor issued four cheques for the amount, which were dishonored. The Tribunal noted the default in payment of operational debt first became due and payable from the invoice dated 05.12.2015, and the debt was not time-barred. 3. Authority and Eligibility of the Resolution Professional to File the Application: The corporate debtor contested the authority of the Resolution Professional to file the application, arguing that no specific power is provided under IBC for the Resolution Professional to initiate such proceedings. The applicant cited Sections 17 and 25 of IBC, which empower the Resolution Professional to manage the affairs of the corporate debtor and protect its assets, including receivables. However, the Tribunal observed that the powers under Sections 17 and 25 pertain to representation in existing legal proceedings, not the initiation of new ones. 4. Interpretation of Section 11 of IBC: The corporate debtor argued that Section 11 of IBC prohibits a corporate debtor undergoing CIRP from initiating another insolvency process. The Tribunal referred to various judgments and legislative intent, noting that Section 11 aims to prevent misuse of the Code and multiple proceedings. The Tribunal observed that the applicant, as a corporate debtor undergoing CIRP, is barred from filing the application under Section 9 of IBC. 5. Definition and Existence of a Pre-existing Dispute: The corporate debtor claimed a pre-existing dispute regarding the quality of goods supplied. However, the Tribunal found no substantial proof or supportive documents from the corporate debtor to show the existence of such a dispute. The Tribunal concluded that the dispute raised was not genuine and bona fide but a sham defense to avoid the debt. 6. Compliance with Procedural Requirements under IBC: The applicant complied with procedural requirements, including issuing a demand notice and filing an affidavit affirming non-receipt of the claimed amount. The bank certificate confirmed the non-receipt of payment from the corporate debtor. The applicant also filed the consent form of the Interim Resolution Professional to be appointed by the Tribunal. Conclusion: Despite the clear debt and default, the Tribunal rejected the application based on the prohibition under Section 11 of IBC, which bars a corporate debtor undergoing CIRP from initiating another insolvency process. The Tribunal highlighted the need for legislative clarification to allow corporate debtors undergoing CIRP to recover their receivables, essential for their survival and revival. A copy of the order was forwarded to the Insolvency and Bankruptcy Board of India (IBBI) for consideration and recommendation to address the identified anomaly.
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