2020 (1) TMI 1278 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Corporate Debtor availed recruitment services of the Petitioner for the post of Director in Corporate Debtor s organization the Corporate Debtor failed and neglected to pay the amount of debt due under the invoice - existence of debt and dispute or not - HELD THAT - The candidate selected by the Petitioner was not in a position to cope up with the job requirements of the Corporate Debtor and left the organization for which the Corporate Debtor sought a suitable replacement. This clearly shows that the candidate selected by the Petitioner is not up to the mark as it is amply proved that the person had resigned for the reason that he was not in a position to cope up with the job. It is to be seen that the Petitioner is charging a fee of 20, 06, 000/- and the selected candidate worked for less than three months - Since the selected candidate who joined on 15.03.2019 resigned on 03.06.2019 which is within 3 months of his appointment the Petitioner is bound to find a suitable candidate for the position of Director failing which the petitioner is bound to refund the fees paid. In terms of the agreement the petitioner has to refund the fees in case if no suitable candidate is replaced by the Petitioner. It is not the case of the petitioner that despite providing the replacement for the resigned candidate the corporate debtor failed to make the payment. Since no replacement has been provided by the petitioner as per the agreement the corporate debtor is not liable to make the payment as claimed by the petitioner as there is no debt. Hence dispute raised by the corporate debtor squarely falls under section 5(6)(a) of the code - thus there is a clear dispute relating to the existence of debt as provided u/s 5(6)(a) of the Code. Petition dismissed.

Summary

Issues:
1. Petition seeking Corporate Insolvency Resolution Process against Corporate Debtor for default in payment.
2. Dispute over recruitment services provided by Petitioner and payment due from Corporate Debtor.
3. Corporate Debtor's contention of breach of agreement terms and demand for suitable replacement.
4. Interpretation of agreement terms regarding replacement of candidate and refund of fees.
5. Application of Section 5(6)(a) of the Insolvency & Bankruptcy Code to determine the existence of debt.
6. Reference to Supreme Court judgment on the requirement for a plausible contention in a dispute.

Analysis:
1. The Petitioner filed a Company Petition seeking to initiate the Corporate Insolvency Resolution Process against the Corporate Debtor for defaulting on a payment of ?20,06,000 on 22.08.2019, invoking Sections 8 and 9 of the Insolvency & Bankruptcy Code along with relevant Rules.

2. The Petitioner, a Sole Proprietor of a consultancy firm, provided recruitment services to the Corporate Debtor, as per an agreement dated 01.04.2016, for which an invoice was raised on 05.08.2019. The selected candidate resigned within three months of joining, leading to a payment dispute.

3. The Corporate Debtor contended that the Petitioner breached the agreement by failing to provide a suitable replacement for the resigned candidate, as requested in a letter dated 30.08.2019, before the demand notice was issued. The Corporate Debtor denied liability for the payment until a replacement was provided.

4. The agreement between the parties specified that if a candidate leaves within three months of joining, the Petitioner must promptly present a suitable replacement at no cost to the Client. Failure to do so would require a refund of fees received. As no replacement was provided, the Corporate Debtor was not liable for payment.

5. Section 5(6)(a) of the Code defines a dispute to include the existence of the amount of debt. In this case, since no replacement was offered as per the agreement, the Corporate Debtor's refusal to pay was justified under this provision, as there was no debt owed.

6. Referring to a Supreme Court judgment emphasizing the need for a plausible contention in a dispute, the Tribunal dismissed the petition, stating that a genuine dispute existed regarding the debt's existence, as required by the Code. The Corporate Debtor's defense was not deemed spurious, leading to the rejection of the application without costs.