2020 (1) TMI 1393 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditor - no authorisation in favour of the person who has initiated the present proceedings from inception on behalf of the operational creditor - time limitation - pre-existing dispute between the parties which would disentitle the petitioner to maintain the present petition - 3 invoices are for the period during which the previous management was in power. Maintainability of application - no authorisation in favour of the person who has initiated the present proceedings from inception on behalf of the operational creditor - HELD THAT - The instant petition is filed by one Mr. Paresh Waskar, who is working as a Dy. Manager in the applicant company. The petitioner has not furnished any document authorising Mr. Paresh Waskar to initiate insolvency proceedings against the respondent company. It is to be noted that the company being juristic person can only act through an Authorised Representative . Form No. 5 mandates to submit name and address of the person authorised to submit application on its behalf . The authorisation letter is required to be enclosed. The signature block of the aforementioned Form No. 5 also provides for authorised person's details is to be inserted and also included, inter alia, the position of the authorised person in relation to the applicant. Thus it is clear that only an authorised person as distinct from power of attorney holder can make an application. In the instant application no authorisation is filed. That apart, even Board Resolution is not there. Hence, on this ground itself the application is not maintainable. Time Limitation - HELD THAT - On perusal of the record it is found that the instant application is filed on 20th November, 2018. As per the records made available by the petitioner page No. 18 to 55 of the application, relates to 26 invoices for the period from 30-9-2013 to 11-9-2014. From the above it is evident that all the 26 invoices against which the claim is made by the petitioner are of the year 2013 - 2014 and therefore hit by the Limitation Act as the application filed on 20th November, 2018 is beyond three years. Admittedly, the applicant issued statutory notice for winding up under section 433 and 434 of the Companies Act, 1956.but, has never filed any application before the Hon'ble High Court for winding up and thereby allowed the claim/right to be time barred. Thus, on this count also it finds that the application is bad and fit for dismissal - Further, on perusal of the record i.e. Form No. 5 it is found that date of default and due date are not given. Thus, form 5 i.e. application itself is incomplete and deserves to be rejected. Thus, it is found that the instant application is filed with malicious intent other than reorganisation and/or insolvency resolution of corporate persons, partnership firms and individuals, in a time bound manner for maximisation of value of assets which is the objective of the I B Code - One must keep in mind that Insolvency Bankruptcy Code is not a recovery process. Recovery is an individual effort by a creditor to recover his dues through a process that has debtor and creditor on opposite sides. In fact, the I B Code prohibits and discourages recovery in several ways. The insolvency code cannot be used for extraneous consideration or as a substitute for debt enforcement procedure, when it requires further investigation. There is/are no merit in the application, rather the same is filed with malicious intent and thereby applicant misused the process of law. Hence, a penalty of ₹ 1.00 lakh is imposed upon the applicant. The penalty so imposed is to be deposited in the Defence Welfare Fund within fifteen days from the date of order. Petition dismissed.

Summary

Issues:
1. Authorization of the person initiating insolvency proceedings on behalf of the operational creditor.
2. Barred claims due to limitation.
3. Existence of a pre-existing dispute between the parties.
4. Allegations of fraudulent or malicious initiation of proceedings.

Authorization of the Person Initiating Proceedings:
The Tribunal noted that the application was filed by an individual without proper authorization as required under Form No. 5, which mandates submission of the authorized person's details. The absence of authorization rendered the application not maintainable, as a juristic person like a company can only act through an authorized representative. Citing the case of State of U.P. v. Babu Ram Upadhyay, the Tribunal emphasized the necessity of compliance with statutory requirements, stating that when a statute specifies a particular manner of action, any other method is prohibited.

Barred Claims Due to Limitation:
The respondent contended that the claims were time-barred, as the application was filed in November 2018 for invoices dating back to 2013-2014, exceeding the three-year limitation period. Upon examination, discrepancies were found between the invoices listed and the actual transactions, casting doubt on the applicant's credibility. Additionally, the applicant's failure to take prior action, such as filing for winding up, allowed the claim to become time-barred, further weakening the application's validity.

Existence of a Pre-existing Dispute:
The respondent raised objections related to a pre-existing dispute between the parties, questioning the petitioner's right to maintain the petition. However, the Tribunal did not delve into this issue as the application was dismissed on other grounds, focusing primarily on maintainability and limitation concerns.

Allegations of Fraudulent or Malicious Initiation:
The Tribunal found that the applicant provided misleading information in the claim, suggesting a malicious intent behind the insolvency proceedings. Citing Section 65 of the Insolvency and Bankruptcy Code, the Tribunal highlighted the penalties for fraudulent or malicious initiation of proceedings. It concluded that the application was filed with malicious intent, deviating from the Code's objective of reorganization and insolvency resolution. As a result, a penalty of ?1.00 lakh was imposed on the applicant, to be deposited in the Defence Welfare Fund within fifteen days.

Conclusion:
The Tribunal dismissed the application due to lack of authorization, time-barred claims, and malicious intent in the initiation of proceedings. While imposing a penalty on the applicant, the Tribunal clarified that this decision does not prevent the petitioner from pursuing its claim through appropriate channels. The judgment underscored that the Insolvency and Bankruptcy Code is not intended for recovery purposes and should not be misused for extraneous considerations or debt enforcement, emphasizing the importance of adhering to legal procedures and objectives outlined in the Code.