2017 (6) TMI 1226 - Tri - Insolvency and Bankruptcy

Insolvency process - repayment of unpaid operational debt despite the invoices for payment were raised by the operational creditors and goods have been delivered to the corporate debtor in terms of its purchase and supply order - whether the corporate debtor company is in default of making payments of the debts - Held that - Corporate debtor raised only speculative defence of alleged fraud in its company which is illusory and does not finds support from its own statutory return and auditors report and also contrary to its purchase list records maintained by the company. Hence such defence appears to have been raised to avoid payments hence cannot be treated as bonafide one in the light of the Hon ble Delhi High Court decision in the matter of Olam Agro India Limited Vs. Mother Impex Private Limited (2014 (4) TMI 944 - DELHI HIGH COURT) Present petition filed by the authorised signatory / managing Director of the operational creditor company and has further been ratified by the Board Resolution passed by the operational creditor companies is found There exists no previty contract among the interested / affected parties e.g. sundry creditors, nor it has been consented to or ratified by these sundry creditors / including the present operational creditors then writing of such liability cannot be treated to be valid one and have legal sanctity as per the Section 62 illustration C of the Indian Contract Act nor the same appear to be bonafide on a sound principle of law of Contract, previty of contract and meeting of minds among contracting parties nor its in conformity with equity and fair play. We feel the present petition deserve to be allowed hence is hereby admitted.

Summary

Issues:
Admission of company petitions under Section 9(5)(2) of the Insolvency and Bankruptcy Code - Default in payment of debts by the corporate debtor to operational creditors - Validity of Memorandum of Understanding (MOU) in relation to debts - Legal status of corporate debtor as insolvent - Defence of alleged fraud by the corporate debtor - Filing of petition by authorized signatory and ratification by operational creditor company - Validity of writing off liabilities based on MOU - Application of Sections 13 & 14 of the I & B Code, 2016 - Imposition of moratorium - Referral to Insolvency & Bankruptcy Board Of India for nomination of Insolvency Resolution Professional.

Analysis:
The Tribunal found the applications complete under Section 9(5)(2) of the Insolvency and Bankruptcy Code, leading to the admission of the company petitions due to the corporate debtor's default in repaying operational debts. Despite invoices raised and goods delivered, payments were not made, indicating insolvency. The Tribunal emphasized the lack of privity of contract between operational creditors and other creditors regarding a Memorandum of Understanding (MOU), rendering the MOU ineffective in absolving debt liability. The legal status of the corporate debtor as insolvent was established based on non-payment of debts, justifying action under the Sales of Goods Act.

The Tribunal dismissed the corporate debtor's speculative defence of fraud, citing statutory returns, auditors' reports, and purchase records contradicting the defence. The filing of the petition by the authorized signatory and its ratification by the operational creditor company were deemed valid, following a Larger Bench decision and Supreme Court precedent on retrospective validation. The Tribunal highlighted that liabilities written off based on the MOU lacked privity of contract and creditor consent, thus not holding legal sanctity.

Based on the facts and judicial precedents, the Tribunal allowed the petition, admitting the company's insolvency. A moratorium was imposed under Sections 13 & 14 of the I & B Code, 2016, restraining suits, asset transfers, and enforcement actions against the corporate debtor. The matter was referred to the Insolvency & Bankruptcy Board Of India for nominating an Insolvency Resolution Professional within the specified timeframe. The Tribunal ordered a publication regarding the moratorium after the IRP's appointment, with no costs imposed in the judgment.