2019 (9) TMI 1614 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - Privity of contract between applicant or not - existence of debt and dispute or not - HELD THAT - There is no document placed on record with respect to any agreement between applicant and corporate debtor - The statutory auditor has personally appeared and admitted that corporate debtor had not availed any services from the applicant and he in good faith to help the applicant, had allotted some work to the applicant and undertook to resolve the issue. The affidavit of the statutory auditor has also been placed on record. On perusal of the record, a conclusion can be drawn that the statements of the applicant is self-contradictory as in the application by the applicant it has been averred that the applicant was engaged by statutory auditor whereas in the affidavit, the applicant has claimed to render the services upon the request of corporate debtor - it can be inferred that there was no privity of contract between applicant and respondent. Further the corporate debtor has raised dispute of locus of the applicant. It is very essential to understand that the intent of the legislature is to be kept in mind that this CIRP can be triggered only where the prima facie debt is payable and default has occurred. In the application under section 9 the existence of dispute has to be developed in and only on satisfaction that corporate debtor is unable to pay debt, then the CIRP can be triggered and not that simply any amount being crystalized as payable. Therefore, in the present case there is no recovery proceeding payable and cannot be used as debt and brought under umbrella of this Code. Application dismissed.

Summary

Issues:
Initiation of Corporate Insolvency Resolution Process under section 9 of IBC, 2016 against Corporate Debtor based on outstanding professional fees.

Analysis:
The Applicant, a company, sought to initiate the Corporate Insolvency Resolution Process against the Corporate Debtor, a private company, for outstanding professional fees. The Applicant claimed that bills remained unpaid despite various attempts to recover the dues. A demand notice was issued under section 8 of IBC, 2016, calling for payment of the outstanding amount. The Corporate Debtor, in response, denied the allegations, stating no contract existed between the parties for the services rendered by the Applicant.

The Corporate Debtor contended that the Applicant was engaged by the statutory auditor and not directly by the Corporate Debtor. The statutory auditor confirmed that no services were availed from the Applicant by the Corporate Debtor. The Corporate Debtor emphasized the lack of privity of contract between them and the Applicant. The statutory auditor admitted to assigning work to the Applicant in good faith but clarified that no direct engagement existed between the Corporate Debtor and the Applicant.

After reviewing the submissions and hearing both parties, the Tribunal concluded that there was no privity of contract between the Applicant and the Corporate Debtor. The Tribunal highlighted the importance of the existence of a debt and default for triggering the Corporate Insolvency Resolution Process under section 9 of IBC, 2016. As there was a dispute regarding the engagement and payment of fees, the Tribunal dismissed the application, emphasizing the need for a clear debt payable without dispute for invoking the provisions of the Code. The application was rejected, and a copy of the order was forwarded to IBBI for records.