2019 (10) TMI 1489 - 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 - There is no denial whatsoever about utilisation of services of the Operational Creditor. In normal business practice, this argument cannot be countenanced because credit limits are likely to be exceeded in the exigencies of business. If the argument of the Corporate Debtor is accepted, then the Corporate Debtor itself should be deemed to have violated the terms of the Agreement. The application made by the Operational Creditor is complete in all respects as required by law. It clearly shows that the Corporate Debtor is in default of a debt due and payable, and the default is in excess of minimum amount of one lakh rupees stipulated under section 4(1) of the IBC. Therefore, the default stands established and there is no reason to deny the admission of the Petition - this Adjudicating Authority admits this Petition and orders initiation of CIRP against the Corporate Debtor. Petition admitted - moratorium declared.

Summary

Issues:
1. Jurisdiction of the Tribunal to deal with the petition.
2. Failure of the Corporate Debtor to make payment leading to the initiation of Corporate Insolvency Resolution Process (CIRP).
3. Validity of the Client Service Agreement and the credit limit mentioned.
4. Arguments presented by the Corporate Debtor regarding the credit limit and obligations.

Jurisdiction of the Tribunal:
The judgment establishes the jurisdiction of the National Company Law Tribunal, Mumbai Bench-IV to handle the Company Petition filed under section 9 of the Insolvency & Bankruptcy Code, 2016 (IBC). The Corporate Debtor, a private company incorporated under the Companies Act, 2013, falls within the Tribunal's jurisdiction due to its registration in Maharashtra, Mumbai.

Failure to Make Payment and Initiation of CIRP:
The Operational Creditor filed the petition due to the Corporate Debtor's failure to pay a principal amount of ?6,12,355.30 and interest of ?1,10,223.95 as on the filing date. The Operational Creditor had rendered services as per the Client Service Agreement, raising invoices and sending a Demand Notice under section 8 of the IBC. Despite receiving the Demand Notice and acknowledging it, the Corporate Debtor did not respond, leading to the initiation of CIRP.

Validity of Client Service Agreement and Credit Limit:
The Operational Creditor's case was supported by a Client Service Agreement dated 14.07.2016, which outlined the terms of service provision, including interest on delayed payments at 18% per annum. The Agreement specified a credit limit of ?1,00,000, beyond which the Corporate Debtor argued that the Operational Creditor was at risk for any excess amounts. However, the Tribunal found this argument untenable as the services were utilized without denial, and exceeding credit limits is common in business transactions.

Arguments Presented by the Corporate Debtor:
The Corporate Debtor contended that once the credit limit was exhausted, they were not obligated to honor any further consignments. However, the Tribunal rejected this argument, emphasizing that the Corporate Debtor did not deny utilizing the services and should not evade responsibility for exceeding credit limits. The balance confirmation letter and lack of denial further supported the Operational Creditor's application, leading to the admission of the Petition and initiation of CIRP against the Corporate Debtor.