2021 (3) TMI 1356 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors or not - Operational Debt or not - existence of debt and dispute or not - HELD THAT - The claim is for remittance of money collected from end customers, cost of inventory given for tolling/production not used or accounted for and supply of equipment (Machinery for Production Line). The claim is made by the applicant as operational debt - Remittance of payments from end customers will not fall under operational debt as it is not a claim in respect of the provision of goods and services. Claim towards the cost of inventory given for tolling/ production not used or accounted for will also not come under operational debt and in addition, there are disputes regarding quantum of allowable scrap and about wastages in conversion/ tolling between the parties before the issue of demand notice as shown in various mails enclosed with the application. Further, there are disputes between parties among other things regarding scrap and other wastages on usage of inventory, functioning of some parts of equipments and on other claims of the applicant as shown in various mails attached in page no. 1468 to 1631 of the application and page no. 107 to 119 of the reply. This Adjudicating Authority is of the view that the instant petition does not qualify for admission under Section 9 of the 1B Code and therefore, the same is rejected - Petition dismissed.

Summary

Issues:
1. Petition under Section 9 of the Insolvency and Bankruptcy Code for unpaid Operational Debt.
2. Dispute over the nature of transactions and operational creditor status.

Analysis:
1. The petitioner filed a petition seeking initiation of Corporate Insolvency Resolution Process against the respondent for unpaid Operational Debt of USD 1,698,440. The transactions involved tolling arrangements for Ethylene Vinyl Acetate Film to make PV encapsulants, with the respondent acting as a tolling agent. The petitioner paid tolling fees and reimbursed expenses incurred by the respondent in selling the PV encapsulants to end customers.

2. The respondent argued that the petition should be dismissed as the petitioner did not qualify as an operational creditor under the Insolvency and Bankruptcy Code due to the nature of transactions and relationship between the parties. The respondent highlighted clauses from the Term Sheet indicating the responsibilities of both parties in the tolling arrangement and joint venture agreement.

3. The Adjudicating Authority examined the documents and transactions between the parties, particularly focusing on the Term Sheet for Tolling and Joint Venture Agreement. The Authority noted that the transactions aligned with the terms of the agreement, with the respondent receiving a tolling fee for manufacturing goods using raw materials supplied by the petitioner. The claim made by the petitioner was analyzed, including remittance from end customers, inventory costs, and equipment supply.

4. The Authority determined that the claim did not fall under operational debt as defined by the Insolvency and Bankruptcy Code. The remittance from end customers, inventory costs, and equipment supply were not considered part of operational debt. Additionally, disputes regarding allowable scrap, wastages, and equipment functioning were identified from the documents submitted by both parties.

5. Consequently, the Adjudicating Authority rejected the petition under Section 9 of the Insolvency and Bankruptcy Code, stating that it did not qualify for admission. The decision was made without prejudice to the merits of the case, and no costs were awarded. The order was communicated to both parties, and the application was rejected and disposed of.

This detailed analysis of the judgment provides insights into the nature of the dispute, the arguments presented by both parties, and the reasoning behind the decision of the Adjudicating Authority.