2019 (5) TMI 1841 - Tri - Companies Law

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - HELD THAT - It is not in dispute basing on the very Settlement Agreement in question, the Respondent has paid ₹ 5 Lakhs on 24.08.2017 in order to settle the issue. Even the claimed amount is not in accordance with terms of the settlement Agreement as did not talk about the payment of any interest for failure to pay outstanding installments. The petitioner failed to make out a case that the Respondent is insolvent and the other hand the Respondents has asserted that there are about 500 employees directly/indirectly depending on it. And the Company runs the now Famous 'Ritz Cariton hotel on Residency Road, which is an iconic brand in Bengaluru. A winding up petition was filed against the petitioner. It is settled position of law that provisions of Code cannot be invoked for recovery of outstanding amount but it can be invoked to initiate CIRP for justified reasons as per the Code. There are several questions of facts and law are involved in the instant case as detailed supra. Even the amount claimed itself is not terms of Settlement Agreement in question, in which interest issue did not mention and part payment of ₹ 5 Lakhs was received, after issue of demand notice. Therefore, there is a serious disputes exists with reference to the claim made by the Petitioner - the application is not only defective as rightly claimed by the Respondent, but it is instituted with an intention to recover the alleged outstanding amount by initiating CIRP proceedings, and it is not a fit case for admission and the same is liable to be rejected. Petition dismissed.

Issues Involved:
1. Maintainability of the claim under IBC, 2016.
2. Definition and applicability of 'Operational Debt' and 'Operational Creditor.'
3. Validity and authority of the Settlement Agreement.
4. Requirement of Demand Notice under Section 8 of the IBC.
5. Existence of a dispute and its impact on CIRP initiation.
6. Payment and interest claims under the Settlement Agreement.
7. Allegations of malafide intentions and procedural deficiencies.

Detailed Analysis:

1. Maintainability of the claim under IBC, 2016:
The Respondent contended that the claim is not maintainable under the IBC, 2016, as the Respondent is not insolvent or in liquidation. The Tribunal noted that the IBC, 2016 is not a substitute for a recovery forum and emphasized that the Code is meant to initiate CIRP for justified reasons, not merely for recovering outstanding amounts.

2. Definition and applicability of 'Operational Debt' and 'Operational Creditor':
The Respondent argued that the amount claimed does not fall within the definition of 'Operational Debt' and that the Petitioner does not qualify as an 'Operational Creditor.' The Tribunal referenced Section 5(20) and 5(21) of the Code, which define 'Operational Creditor' and 'Operational Debt,' respectively. The Tribunal concluded that the claim arising from the Settlement Agreement does not constitute an operational debt.

3. Validity and authority of the Settlement Agreement:
The Respondent asserted that the Settlement Agreement was not authorized by a Board Resolution and was not duly stamped as per the Stamp Act. The Tribunal observed that the Settlement Agreement, which was the basis for the Petitioner's claim, was not signed by the Respondent Company and lacked necessary Board approvals. This undermined the validity of the Petitioner's claim under the IBC.

4. Requirement of Demand Notice under Section 8 of the IBC:
The Respondent highlighted that the Petitioner failed to issue a fresh demand notice after partial payment was made, as required under Section 8 of the Code. The Tribunal noted that the demand notice dated 17.07.2017 was based on the Settlement Agreement, and the Petitioner did not issue a fresh notice for the remaining amount, thereby making the petition defective.

5. Existence of a dispute and its impact on CIRP initiation:
The Respondent pointed out that there was a genuine dispute regarding the claim, as evidenced by the winding-up proceedings and the Settlement Agreement. The Tribunal referred to the Supreme Court's judgment in 'Mobilox Innovations Private Limited vs. Kirusa Software Private Limited,' which held that the existence of a dispute is a valid ground for rejecting an application under Section 9 of the Code. The Tribunal found that there were serious disputes regarding the claim, making the application unsuitable for CIRP initiation.

6. Payment and interest claims under the Settlement Agreement:
The Tribunal observed that the Settlement Agreement did not mention any interest for delayed payments, and the Petitioner had already received a partial payment of ?5,00,000/-. The Tribunal concluded that the claimed amount was not in accordance with the Settlement Agreement, and there was no provision for interest on delayed payments.

7. Allegations of malafide intentions and procedural deficiencies:
The Respondent alleged that the Petition was filed with malafide intentions and highlighted procedural deficiencies, such as the lack of a verifying affidavit and discrepancies in the claimed amounts. The Tribunal noted these procedural issues and concluded that the Petition was defective and filed with the intention to recover the outstanding amount rather than initiate a genuine CIRP.

Conclusion:
The Tribunal rejected the Petition on the grounds that it was defective, not maintainable under the IBC, and filed with the intention to recover the outstanding amount rather than initiate a genuine CIRP. The Tribunal emphasized that the IBC is not a substitute for a recovery forum and highlighted the existence of serious disputes regarding the claim. The Tribunal also noted that the Petitioner is free to seek remedies under other laws to address its grievances. No order as to costs.

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