2020 (12) TMI 1316 - 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 - validity of demand notice - HELD THAT - The demand notice dated 21.08.2019 is issued by one Mr. Naveen Jain claiming to be Director of the applicant company. Demand notice, a pre-requisite under section 8 of the Insolvency Bankruptcy Code, 2016 for filing the petition under section 9, is signed and issued by Mr. Naveen Jain without any authority. On perusal of the record it is found that no document is filed by the applicant authorising Mr. Naveen Jain to sign and issue such demand notice. On perusal of the records it is also found that one Mr. Jatinder Kumar, claiming to be Director of the petitioner company, has signed the application (form 5), but no document is filed whereby Mr. Jatinder Kumar has been given authority to file such application. Thus, due to want of proper authorisation, supported with Board Resolution, demand notice and subsequent filing of the instant application is bad in the eye of law and is not maintainable. The agreement dated 10.11.2017 entered between the petitioner and respondent stipulates that (Clause No. 32), which read as; whether the termination of this Agreement by either party has been legitimate, the parties shall attempt to settle such dispute amicably between them in the event that such dispute has not been amicably settled within 90 days, then such a question or dispute shall be referred to and finally resolved by arbitration with the Arbitration Rule of Arbitration and Conciliation Act, 1996 and the precise location of the arbitration shall be Gurugram - the Code cannot be used as an arm twisting weapon. Further, the applicant has admitted that it had paid a sum of ₹ 1.00 crore towards security which is refundable. The petition is not maintainable and bad in the eyes of law - Petition dismissed.

Summary

Issues:
1. Validity of the demand notice and application under Section 9 of The Insolvency and Bankruptcy Code, 2016.
2. Interpretation of the arbitration clause in the agreement between the parties.
3. Compliance with the terms of the agreement and the consequences of non-performance.

Analysis:

Issue 1: Validity of the demand notice and application under Section 9 of The Insolvency and Bankruptcy Code, 2016.
The petitioner, an operational creditor, filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016, against the respondent, a corporate debtor, for non-payment of dues. The respondent challenged the validity of the demand notice and application. The Tribunal found that the demand notice was issued without proper authorization, rendering the application not maintainable due to lack of authority in signing the notice and application. The absence of a board resolution supporting the actions of the individuals signing the documents led to the dismissal of the petition.

Issue 2: Interpretation of the arbitration clause in the agreement between the parties.
The agreement between the parties contained an arbitration clause stating that disputes should be settled amicably and referred to arbitration if not resolved within 90 days. The Tribunal observed that filing a petition under Section 9 of the Code was a violation of the agreement, which mandated arbitration for dispute resolution. Emphasizing the objective of the Code for resolution over liquidation, the Tribunal deemed the petition as an attempt to misuse the Code as a coercive tool, especially considering the existence of a refundable security deposit paid by the petitioner.

Issue 3: Compliance with the terms of the agreement and the consequences of non-performance.
The respondent argued that the petitioner did not fulfill its obligations under the agreement, leading to the dispute. The respondent contended that the demand notice did not comply with the provisions of the Code and lacked supporting documentation. Additionally, the respondent claimed to have made payments towards commissions and interest, while the petitioner allegedly failed to deliver stock as per the agreement. The Tribunal, considering the lack of authorization in issuing the demand notice and filing the application, dismissed the petition as not maintainable and not in accordance with the law.

In conclusion, the Tribunal dismissed the company petition due to issues related to the authorization of the demand notice and application, the violation of the arbitration clause in the agreement, and the misuse of the Code for coercive purposes. The dismissal does not preclude the petitioner from seeking redress through appropriate channels, emphasizing the importance of adherence to legal procedures and contractual obligations in insolvency proceedings.