2020 (3) TMI 1357 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors failed to show that Corporate Debtor is insolvent - misuse of I B Code - existence of debt and dispute or not - HELD THAT - The operational creditor failed to show that the amount so claimed is 'due' and payable to the operational creditor and has also failed to show that the corporate debtor is insolvent. When the objective of the I B Code 2016 is to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interest of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto, liquidation brings the life of a corporate to an end. Hence, the I B Code cannot be allowed for the purpose of arm twisting when the amount is not due and payable and/or has not yet been paid. On perusal of the records it appears that the operational creditor intentionally filed this application with some malicious intent so as to pressurise the corporate debtor, where the legislation intention is purely based on the resolution of the company. That, the operational creditor failed to show that the corporate debtor is insolvent. That, all the invoices are time barred. That apart, no documents like purchase orders, delivery challans, lorry receipt etc. are produced in order to show that the goods were delivered. It is a fit case where a penalty of ₹ 1.00 lac has to be imposed upon the operational creditor for misusing the I B Code. Accordingly, a sum of ₹ 1.00 lac is imposed upon the petitioner which is payable to Army Welfare Fund within ten days from the date of this order. The application, so filed by the applicant is not maintainable and is bad in law as well as in facts - Application dismissed.

Summary

Issues:
Application under Section 9 of The Insolvency and Bankruptcy Code, 2016 for operational debt recovery.

Analysis:
The application was filed by M/S. Vimal Coal Private Limited as an operational creditor, claiming an outstanding amount of ?14,09,449 from the respondent/corporate debtor for supplying imported steam coal. The operational creditor alleged non-payment and issued a demand notice. The respondent argued that the petition was time-barred as the alleged default date was beyond the limitation period. The respondent also denied the acknowledgment of invoices and outstanding payments. The respondent lodged a police complaint claiming the outstanding amount was paid.

Upon review, the Tribunal found that the invoices were time-barred and the only document presented, the account ledger, was suspicious as the original was not produced. The seal and signature on the ledger appeared distorted, raising doubts about its authenticity. The Tribunal concluded that the operational creditor failed to prove the debt was due and payable or demonstrate the insolvency of the corporate debtor.

The Tribunal highlighted that the Insolvency and Bankruptcy Code aims to resolve insolvency issues promptly and maximize asset value. Liquidation is considered as a last resort, and the Code should not be misused for coercive purposes when the debt is not due or paid. The operational creditor's failure to provide essential documents like purchase orders and delivery receipts further weakened their case.

Citing Section 65 of the Insolvency and Bankruptcy Code, the Tribunal imposed a penalty of ?1.00 lakh on the operational creditor for misusing the Code. The penalty was directed to be paid to the Army Welfare Fund within ten days. Ultimately, the Tribunal deemed the application as not maintainable and legally flawed based on the discussed facts and circumstances.