2018 (3) TMI 1889 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditor - suit between the parties was pending since prior to issuance of demand notice under sub-section (1) of Section 8 of the I B Code - HELD THAT - As admittedly the suit between the parties was pending before the date on which demand notice was issued under sub-section (1) of Section 8 of the I B Code and was also pending when the application under Section 9 of the I B Code was admitted application under section 9 of the I B Code was not maintainable. The order dated 30th August 2017 passed by Adjudicating Authority Bengaluru Bench is set aside and the appeal is allowed.

Summary

Issues: Appeal against admission of application under Section 9 of the Insolvency and Bankruptcy Code, 2016; Existence of dispute between parties; Maintenance of application under Section 9 of the I & B Code.

Analysis:
1. The appeal was filed by a shareholder against the order admitting an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, where a moratorium was declared, and an Interim Resolution Professional was appointed. The appellant argued that the suit was pending before the issuance of the demand notice under Section 8 of the I & B Code, rendering the application under Section 9 not maintainable.

2. The Operational Creditor supplied goods to the Corporate Debtor and filed a suit for non-payment. Despite the suit, a demand notice under Section 8 of the I & B Code was issued, followed by an application under Section 9. The court noted that the suit was pending before the demand notice was issued, making the Section 9 application invalid.

3. The Hon'ble Supreme Court's ruling in "Mobilox Innovations Private Ltd. v. Kirusa Software Private Ltd." highlighted the procedural requirements under Sections 8 and 9 of the I & B Code. It emphasized the need for pre-existing disputes or suits before the issuance of demand notices or invoices for operational debts.

4. The judgment concluded that since the suit was pending before the demand notice and application under Section 9 were made, the application was not maintainable. The order admitting the application was set aside, and the Corporate Debtor was released from the insolvency proceedings.

5. The court allowed Financial Creditors or Operational Creditors to file fresh applications under Sections 7 or 9 of the I & B Code. Any pending applications against the Corporate Debtor were to be considered independently without influence from the previous impugned order.

6. All orders related to the appointment of the Interim Resolution Professional, moratorium, and other actions were deemed illegal and set aside. The Corporate Debtor was permitted to function independently, and the proceeding was to be closed. The fee of the Interim Resolution Professional, if appointed, was to be fixed by the Adjudicating Authority.

7. The appeal was disposed of with the above observations, and no costs were awarded in the case. The judgment provided clarity on the procedural requirements and the importance of pre-existing disputes in insolvency proceedings under the I & B Code.