2017 (6) TMI 1168 - Tri - Insolvency and Bankruptcy

Initiation of a resolution process - Insolvency and Bankruptcy Code 2016 - Held that - t has come on record that the Corporate Debtor is a running concern and is solvent. The amount of alleged default is disputed. Therefore, we are not able to persuade ourselves that a case for initiating Corporate Insolvency Resolution Process is made out (CIRP) because this process cannot be used as a recovery mechanism - petition disposed of by giving liberty to the petitioner to avail any other remedy in accordance with law.

Summary

Issues:
1. Initiation of corporate insolvency resolution process under Section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Claim for payment of salary, gratuity, and provident fund.
3. Inclusion of interest in the claimed amount.
4. Dispute regarding the amount of default and solvency of the Corporate Debtor.
5. Legal interpretation of 'Operational Debt' and the entitlement to interest.
6. Decision on the initiation of Corporate Insolvency Resolution Process.

Analysis:
1. The Operational Creditor sought initiation of the corporate insolvency resolution process against the Corporate Debtor under Section 9 of the Insolvency and Bankruptcy Code, 2016, due to a dispute over salary payment totaling &8377;6,33,777. The petition detailed the principal amount, default dates, and interest calculations for salary, gratuity, and provident fund.

2. The petition included interest calculations at 15% for delayed payments, totaling &8377;58,264.02, &8377;67,436.36, and &8377;32,727.52. The Corporate Debtor had made partial payments but outstanding professional charges and interest remained.

3. The respondent argued against the interest component, citing a judgment that interest is not explicitly included in operational debt. However, the Tribunal acknowledged that interest could be implied as compensation for delayed dues, not as interest. The Tribunal agreed with the 15% simple interest claimed by the petitioner, including professional charges and provident fund arrears.

4. Despite the dispute over the default amount and the solvency of the Corporate Debtor, the Tribunal found insufficient grounds for initiating the Corporate Insolvency Resolution Process as it cannot be a mere recovery mechanism. The petition was disposed of, granting the petitioner liberty to seek other legal remedies without expressing an opinion on the underlying controversy.

5. The Tribunal clarified that the absence of interest in the definition of 'Operational Debt' does not preclude its inclusion as compensation for delayed payments. The decision to allow interest at 15% was based on the implied compensation principle rather than a direct entitlement to interest under the Code.

6. Ultimately, the Tribunal declined to initiate the Corporate Insolvency Resolution Process due to the disputed default amount and the solvent status of the Corporate Debtor. The order emphasized that the decision should not influence other forums and granted the petitioner the freedom to pursue alternative legal avenues.