2018 (4) TMI 1851 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - Whether entering into consent terms over an operational debt for dismissal of earlier company petition will change the nature of the claim that has been made by the petitioner before this Bench or not? - HELD THAT - It is a fact that this petitioner filed a company petition stating that it has rendered services to the corporate debtor for the construction of multi-purpose berth Nos. 1 and 2 at Dighi, Maharashtra, under the contract dated November 1, 2008. On having the services rendered and the corporate debtor having not paid, when the petitioner's side ready to argue the case, the corporate debtor entered into consent terms with the petitioner on March 29, 2017 agreeing as mentioned before by stating that the petitioner is entitled to file fresh company petition under the IB Code in the event payment has not been made as mentioned in the consent terms and also by saying that the arbitration proceedings pending before the hon'ble High Court would be treated as withdrawn in view of the consent terms arrived between the parties. For these consent terms have been entered into comprehensively dealing not only with the payments in relation to berth Nos. 1 and 2 at Dighi but also in respect to berth No. 3 at Agardanda, Maharashtra, a clause has been inserted that the arbitration application filed by the petitioner in respect to berth No. 3 would be treated as withdrawn by saying that arbitration proceedings stood as withdrawn in view of the consent terms arrived between the parties in respect to berth No. 3 as well. It is vividly clear that whatever disputes either in relation to the services given by the petitioner or in relation to any of the arbitration proceedings, it has to be understood that the parties arrived into an understanding that whatever disputes were there before entering into consent terms in respect to berth No. 3 would also be merged (doctrine of merger) as part of the consent terms, today the corporate debtor counsel could not say that there is a pre-existing dispute in respect to berth No. 3, therefore, this claim cannot be construed as hit by pre-existing disputes. When the parties arrived to a settlement or consent terms, whatever disputes that were in existence before execution of the consent terms, have to be treated as resolved by the consent terms subsequently arrived at - Merely because consent terms arrived between the parties will never change the nature of the claim, here the claim is the petitioner rendered services to which money was not paid, upon which company petition was filed since the corporate debtor entered into consent terms putting the petitioner under belief that he would pay money to the petitioner as agreed in the consent terms, the petitioner withdrew the company petition believing that the corporate debtor would make payment as agreed in the consent terms. It can be safely inferred that merely entering into consent terms, operational debt neither will become financial debt nor something else, the nature of the claim is same, it has to be treated as operational debt in view of the same for having the petitioner filed consent terms and the corporate debtor having defaulted in making payment as stated in the consent terms and there being no dispute in respect to the corporate debtor executing consent terms and filing the same before this Bench, there cannot be any argument saying that dispute is in existence in respect to the services provided by the petitioner. Petition admitted - moratorium declared.

Summary

Issues Involved:
1. Default in payment by the corporate debtor.
2. Validity and enforcement of consent terms.
3. Existence of pre-existing disputes.
4. Authority of the petitioner to enter into consent terms.
5. Nature of the claim as operational debt.

Detailed Analysis:

1. Default in Payment by the Corporate Debtor:
The petitioner filed a company petition under section 9 of the Insolvency and Bankruptcy Code, 2016, against the corporate debtor for defaulting on a payment of ?30 crores based on consent terms dated March 29, 2017. The petitioner rendered services for the construction of multi-purpose berths, and the corporate debtor failed to pay the agreed amounts, leading to the filing of the petition for initiating the corporate insolvency resolution process (CIRP).

2. Validity and Enforcement of Consent Terms:
The consent terms between the parties stipulated that the corporate debtor would pay ?30 crores in specified instalments. However, the corporate debtor defaulted on these payments, leading to the petitioner filing the current petition. The consent terms included clauses for indemnification, proof of payment to sub-contractors, and reimbursement conditions, all of which were not fulfilled by the corporate debtor. The Tribunal found that the corporate debtor's failure to adhere to the consent terms constituted an event of default, entitling the petitioner to file a fresh insolvency petition.

3. Existence of Pre-existing Disputes:
The corporate debtor argued that there was a pre-existing dispute, citing an ongoing arbitration application and a letter from a shareholder objecting to the consent terms. However, the Tribunal noted that the consent terms comprehensively resolved all disputes related to the services provided and the pending arbitration proceedings. The Tribunal concluded that any disputes existing before the consent terms were resolved by the agreement, and the subsequent actions of the corporate debtor, including partial payments, indicated acceptance of the consent terms.

4. Authority of the Petitioner to Enter into Consent Terms:
The corporate debtor challenged the authority of the petitioner to enter into the consent terms, claiming that the terms were agreed upon without proper authorization from the petitioner's board of directors. The Tribunal dismissed this argument, noting that no objections were raised by any party from the petitioner-company regarding the authority to file the petition based on the consent terms. The Tribunal held that the corporate debtor was estopped from retracting from the consent terms and that the argument of lack of authority was a ruse to avoid payment.

5. Nature of the Claim as Operational Debt:
The Tribunal emphasized that the nature of the claim remained an operational debt, despite the consent terms. The claim was based on services rendered for which payment was due. The Tribunal rejected the corporate debtor's argument that the consent terms changed the nature of the claim. The Tribunal held that the operational debt was valid, and the corporate debtor's default in payment under the consent terms justified the initiation of the CIRP.

Conclusion:
The Tribunal admitted the company petition, initiating the CIRP against the corporate debtor. The order included prohibitions on suits or proceedings against the corporate debtor, continuation of essential goods or services, and other measures as per the Insolvency and Bankruptcy Code. An interim resolution professional was appointed to carry out the functions under the Code.

The registry was directed to communicate the order to the operational creditor and the corporate debtor.