2020 (12) TMI 1258 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment under the terms of the Construction Contract - Operational Creditors - petition for recovery of debt - existence of debt and dispute or not - HELD THAT - The two sides have been in constant communication with regard to the recovery of the debt, till very recently and the negotiations have not concluded. The Corporate Debtor has shown willingness to pay and has made an offer. Further, it is seen that out of the total project cost of ₹ 103,97,89,507, the net payable amount was calculated at ₹ 12,45,89,866, and finally the total amount remaining payable is only ₹ 6,98,47,408. That is, a substantial part of the debt has already been recovered by the Operational Creditor. Thus it is obvious that this is a clear case of the Operational Creditor pursuing recovery and through the present Petition is seeking the assistance of this Tribunal in its effort to recover the balance amount. This Tribunal and the IBC cannot be used as a recovery mechanism. This is clearly not the object of the Code. The real estate sector has badly affected, resulting in incomplete projects and home buyers suffering in the process. In the instant case, the demand as per the revised terms of payment was to be paid in instalments on 15.02.2020, 30.04.2020 and 30.06.2020. Of these the second two instalments fall in the period of the Lockdown when business was at its lowest ebb. Major decisions had to be taken be taken by the Government to revive business, to inject economic stimulus, enable restructuring of debts, introducing modifications and suspension of various provisions of the Code, extending limitations of time etc. In this bleak scenario, it cannot be known whether it would be fruitful to push the Corporate Debtor into CIRP, or into liquidation if no Resolution Applicant comes forward. That would be against the objects of the Code. The Petitioner and the Respondent have been negotiating the terms of payment till very recently and the same are still on. The Corporate Debtor is willing to pay, only the terms are to be settled keeping in mind the present economic scenario. Hence, the Petition appears to be not only for recovery of debt but is premature. It would be in the interest of justice to allow the Corporate Debtor a few more months to clear the debt or settle the matter with the Petitioner - Petition disposed off.

Summary

Issues:
Company Petition filed under Insolvency and Bankruptcy Code, 2016 for default in payment by Corporate Debtor.

Detailed Analysis:

1. Facts of the Case and Default Amount: The Petitioner, a global leader in engineering and construction, initiated a Company Petition against the Corporate Debtor for defaulting on a payment of ?6,98,47,408 as per the Construction Contract. Despite several negotiations and settlement attempts, the Corporate Debtor failed to make the payments agreed upon.

2. Legal Principles and Tribunal's Observation: The Tribunal emphasized that the Insolvency and Bankruptcy Code is not a substitute for debt recovery mechanisms and should only be invoked for justified reasons. It noted the Supreme Court's stance that the Code is not intended for premature use or as a debt enforcement forum. The Tribunal clarified that it is not a dispute resolution platform.

3. Negotiations and Covid-19 Impact: The Tribunal acknowledged ongoing negotiations between the parties and the Corporate Debtor's citing of the Covid-19 pandemic and real estate market slowdown as reasons for non-payment. It considered the impact of the pandemic on businesses and the real estate sector, affecting payment schedules. The Tribunal highlighted the need for economic revival measures and modifications due to the pandemic's adverse effects.

4. Conclusion and Disposition: The Tribunal concluded that the Petition seemed premature as negotiations were ongoing, and the Corporate Debtor showed willingness to pay, subject to revised terms due to the economic scenario. It deemed the case unsuitable for admission at the present stage and disposed of the Company Petition. However, it granted liberty to the Petitioner to file a fresh Petition later if warranted by the Code's provisions.

Overall, the Tribunal's decision emphasized the need for justifiable reasons to invoke the Insolvency and Bankruptcy Code, considering ongoing negotiations, the impact of the Covid-19 pandemic, and the objective of the Code not being a mere recovery mechanism.