2019 (12) TMI 1495 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - HELD THAT - It is not disputed that the debt is payable to the Operational Creditor, which is more than ₹ 1 Lakh and there is default in making payment. Such submission cannot be accepted as Authorisation Letter, even if, issued prior to the enactment of I B Code can be looked into for purpose of entertaining an application under Section 7 or 9 of the Code - Appeal dismissed.

Summary

Issues:
1. Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 filed by Operational Creditor.
2. Challenge to the initiation of Corporate Insolvency Resolution Process against the Corporate Debtor.
3. Obligation of Operational Creditor to honor consignments after credit limit exhaustion.
4. Validity of the authorization for filing the application under Section 9.

Analysis:
The case involved an appeal against the initiation of Corporate Insolvency Resolution Process under Section 9 of the Insolvency and Bankruptcy Code, 2016 by an Operational Creditor against a Corporate Debtor. The Appellant contended that the Operational Creditor was not obligated to honor consignments beyond a credit limit of ?1 Lakh as per the Client Services Agreement. However, the Tribunal noted that the debt exceeding ?1 Lakh was undisputed and there was a default in payment by the Corporate Debtor, rejecting the Appellant's argument.

Another issue raised was the validity of the authorization for filing the application under Section 9. The Appellant argued that the authorization was done in 2013, prior to the enactment of the Insolvency and Bankruptcy Code in 2016, and hence was not valid. However, the Tribunal held that even if the authorization was issued before the Code came into force, it could still be considered for the purpose of entertaining an application under Section 7 or 9 of the Code.

Ultimately, the Tribunal found no merit in the appeal and dismissed it, without imposing any costs. The decision reaffirmed the obligation of the Corporate Debtor to pay the undisputed debt exceeding the credit limit and clarified that pre-Code authorizations could be valid for initiating insolvency proceedings under the relevant sections of the Insolvency and Bankruptcy Code.