2019 (7) TMI 1578 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - existsence of debt and dispute or not - HELD THAT - A plausible dispute had been raised in respect of the outstanding amount claimed. There is no letter of engagement agreeing to pay service charge @ 1% GST. No copy of the application form submitted on behalf of the Corporate Debtor, or document annexed supporting that the Corporate Debtor was relying on the Operational Creditor for procuring the loan for and on their behalf. The sanction of the loan would have involved various documents to be submitted by the Corporate Debtor. None is on record to substantiate that the Operational Creditor was actually engaged for their services. Further the terms of the Bank sanctioning the limit did not meet or suit the requirements of the Corporate Debtor, nor were these availed by them. In the absence of clear-cut liability which remains unliquidated despite demands, resolution of an ongoing company in operation cannot be initiated on mere averments - petition dismissed.

Summary

Issues:
Initiating Corporate Insolvency Resolution Process under Section 9 of the Insolvency and Bankruptcy Code.

Analysis:
The petition was filed under Section 9 of the Insolvency and Bankruptcy Code to initiate the Corporate Insolvency Resolution Process against the respondent, a Corporate Debtor. The Operational Creditor claimed that they had arranged loans for the Corporate Debtor totaling ?25 crores from the State Bank of India, entitling them to a service charge of 1% of the sanctioned limits. However, the Corporate Debtor did not wish to avail the sanctioned limits due to certain unacceptable terms regarding loan repayment and interest rates. The Operational Creditor raised an invoice of ?25 lakhs plus GST, amounting to ?29.50 lakhs, which the Corporate Debtor failed to remit, leading to a demand notice under Section 8 of the Insolvency and Bankruptcy Code.

The Corporate Debtor denied engaging the services of the Operational Creditor and claimed that they did not agree to pay a service charge of 1% of the sanctioned amount. They stated that they only received information about professional charges for a valuation report, and the terms of the proposal procured by the Operational Creditor were not acceptable to them due to high processing charges and interest rates. The Corporate Debtor's defense led to a detailed examination by the Tribunal of the documents and correspondence on record.

Upon review, the Tribunal found no letter of engagement assigning the Operational Creditor to act on behalf of the Corporate Debtor in liaising with financial institutions for loans. There was no agreement to pay the service charges claimed by the Operational Creditor, and no evidence supported the claim that the Corporate Debtor engaged them for securing financial assistance. The Tribunal noted the absence of essential documents such as the application for financial assistance or any collateral security offers. The terms of the loan sanction did not align with the Corporate Debtor's requirements, and they did not avail the sanctioned limits, leading to a plausible dispute regarding the outstanding amount claimed.

Ultimately, the Tribunal concluded that the absence of a clear-cut liability, despite demands, did not warrant the initiation of insolvency proceedings against the Corporate Debtor. Therefore, the petition was rejected, and the file was directed to be consigned to the record room.