2020 (12) TMI 1283 - Tri - 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 the 'date of default' which is the basis on which the applicability of the notification is to be applied and not the date of filing a Petition in this Tribunal. As the date of default is 03.06.2017 and onwards, the petition survives for consideration, on merits. It is a settled position of law that the provisions of Code cannot be invoked for recovery of outstanding amount but it can be invoked to initiate CIRP for justified reasons as per the Code. The Hon'ble Supreme Court in the case of Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited 2017 (9) TMI 1270 - SUPREME COURT , has inter alia held that I B Code, 2016 is not intended to be substitute to a recovery forum. It is also laid down that whenever there is existence of real dispute, the IBC provisions cannot be invoked. In the instant case, it is found that from 2017 itself a dispute has been going on with regard to the quality of goods supplied by the Petitioner and the payments due from the Respondent, i.e. much prior to the issue of the Demand Notice under the Code and filing of the instant Petition. It is seen from the email dated 15.07.2017 and 01.08.2017, i.e. prior to the filing of this Petition, which were sent by the Respondent to the Applicant, that the Respondent had already raised disputes regarding the shoddy work done by the Applicant and the quality of the goods supplied - From the evidence brought on record, it is convincing that the disputes cited were genuine, were taken into other forums such as MSMEC, and documented, and not merely a made up dispute or ruse to stall initiation of CIRP. In the instant case, it is admittedly a real dispute that has been taken to the MSMEC for resolution. Hence as far as the IBC is concerned, existence of such a dispute takes the Petition out of the ambit and scope of this Tribunal - it cannot be said that the Respondent has lost its substratum and is unable to run its business or pay its debts. Such a company cannot be unjustifiably pushed into an insolvency resolution process as that would be against the objects of the Code. In view of the pre-existing dispute between the two sides, the readiness of the Corporate Debtor to settle the debt, as also for the reason that the Corporate Debtor is a solvent company; we are not satisfied that this is a fit case for ordering CIRP against the Respondent Corporate Debtor - petition disposed off.

Summary

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the IBC, 2016.
2. Existence of a pre-existing dispute regarding the quality of goods supplied.
3. Applicability of enhanced threshold for triggering insolvency proceedings.
4. Use of the tribunal as a recovery forum for MSME orders.
5. Solvency of the Corporate Debtor.

Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the IBC, 2016:
The petition was filed by the Operational Creditor under Section 9 of the IBC, 2016, seeking to initiate CIRP against the Corporate Debtor for an outstanding amount of ?50,67,926, including interest. The Operational Creditor supplied furniture to the Corporate Debtor and raised invoices, of which ?36,20,150 remained unpaid. The Operational Creditor issued a Demand Notice under Section 8 of the Code, which was duly served but received no response from the Corporate Debtor.

2. Existence of a pre-existing dispute regarding the quality of goods supplied:
The Corporate Debtor raised objections, citing major technical deficiencies in the goods supplied, which led to disputes starting in 2017. The Corporate Debtor provided evidence of complaints from its clients and internal communications highlighting the defective goods. The Corporate Debtor argued that these disputes were genuine and pre-existed before the Demand Notice was issued. The tribunal agreed, noting that the disputes were documented and taken to other forums, such as the MSME Council, indicating their authenticity.

3. Applicability of enhanced threshold for triggering insolvency proceedings:
The Corporate Debtor contended that the petition should be dismissed due to the enhanced threshold for triggering insolvency proceedings to ?1 Crore. However, the tribunal clarified that the applicability of the notification is based on the 'date of default,' not the date of filing the petition. Since the default occurred in 2017, the petition was valid for consideration.

4. Use of the tribunal as a recovery forum for MSME orders:
The tribunal emphasized that the IBC is not a substitute for a recovery forum. The Operational Creditor's attempt to use the tribunal to enforce the MSME order was deemed inappropriate. The tribunal noted that the MSME order and the disputes raised therein could not solely determine the outcome under IBC proceedings, which are independent and require a prima facie case for insolvency.

5. Solvency of the Corporate Debtor:
The tribunal examined the solvency of the Corporate Debtor, which provided a solvency certificate and evidence of ongoing business operations. The tribunal found that the Corporate Debtor was solvent, with a significant paid-up capital and active clients. It concluded that pushing a viable company into insolvency without just cause would be against the objectives of the Code.

Conclusion:
The tribunal dismissed the petition, noting the pre-existing genuine disputes and the solvency of the Corporate Debtor. It allowed the parties to settle the matter mutually within a reasonable time and granted liberty to the Operational Creditor to file a fresh petition if no settlement is reached, subject to the provisions and objectives of the Code. No order as to cost was made.