2022 (6) TMI 1293 - 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 default or not - HELD THAT - After the settlement was arrived, the Respondent/Corporate Debtor however failed to pay the amount. Despite the settlement arrived at between the parties, the Respondent/Corporate Debtor filed an application under Section 34 of Arbitration Conciliation Act, 1996 before the Hon'ble High Court of Madras on 05.07.2021. The petition is not numbered till date but it is in the SR stage for almost one year. Since the settlement was not honoured by the Respondent/Corporate Debtor, the Petitioner/Operational Creditor was once again forced to file this petition on 15.12.2021. Prima facie, the debt and default has been established by the Petitioner/Operational Creditor by referring to the various marine goods supply bills which were duly acknowledged by the Respondent/Corporate Debtor and also by the award wherein the Respondent/Corporate Debtor clearly admitted the receipt of goods for export. It is another matter that the Respondent/Corporate Debtor was unable to make the payment as undertaken. The question is that in subsequent event viz., filing of the counter claim, both parties entered into an arbitration award and that award crystallized the amount due and payable under the supply of goods and Memorandum of Compromise settlement has been arrived by the Respondent/Corporate Debtor in favour of the Operational Creditor herein. It is the nature of goods sold and delivered for which the amount due and payable has not been paid by the Respondent/Corporate Debtor, despite several proceedings taken by the Petitioner/Operational Creditor in different forums. Therefore, it is a clear case of inability to pay the debt by the Respondent/Corporate Debtor. The Petition, as filed by the Operational Creditor in a clear case of debt and default coupled with inability to pay justifies initiation of proceedings. Hence, the petition is required to be admitted under Section 9(5) of the IBC, 2016. Petition admitted - moratorium declared.

Summary

Issues Involved:
1. Invocation of Section 9 of the IBC, 2016 by the Operational Creditor.
2. Non-payment by the Corporate Debtor under the Sourcing and Distribution Agreement.
3. Arbitration proceedings and subsequent award.
4. Memorandum of Compromise Settlement and its breach.
5. Application under Section 34 of the Arbitration & Conciliation Act, 1996.
6. Initiation of Corporate Insolvency Resolution Process (CIRP).

Detailed Analysis:

1. Invocation of Section 9 of the IBC, 2016 by the Operational Creditor:
The Petitioner, an Operational Creditor, sought to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016. The Operational Creditor entered into a Business contract with the Corporate Debtor under a Sourcing and Distribution Agreement dated 17.10.2018, involving the export of marine products. The Operational Creditor paid the suppliers directly, and the goods were delivered to the Corporate Debtor, which acknowledged receipt.

2. Non-payment by the Corporate Debtor under the Sourcing and Distribution Agreement:
Despite multiple transactions where goods were delivered and acknowledged by the Corporate Debtor, payments were not forthcoming. This led the Operational Creditor to seek various remedies, including proceedings under Section 138 of the Negotiable Instruments Act, 1881, and an arbitration petition filed on 03.11.2020, resulting in an award on 16.04.2021.

3. Arbitration proceedings and subsequent award:
The arbitrator considered the claims and counterclaims, concluding that the Corporate Debtor's obligation to pay was unaffected by the withdrawal of government subsidies. The arbitrator awarded Rs. 2,70,07,459/- with 18% interest from the date of the claim statement until payment. The award also included proportionate costs and dismissed the counterclaim filed by the Corporate Debtor.

4. Memorandum of Compromise Settlement and its breach:
Following the arbitration award, the parties entered into a Memorandum of Compromise Settlement on 30.06.2021. The settlement outlined payment terms and conditions, including the issuance of fresh dated cheques by the guarantors. Despite this settlement, the Corporate Debtor failed to make the agreed payments, leading the Operational Creditor to file the current petition on 15.12.2021.

5. Application under Section 34 of the Arbitration & Conciliation Act, 1996:
The Corporate Debtor filed an application under Section 34 of the Arbitration & Conciliation Act, 1996, before the Hon'ble High Court of Madras on 05.07.2021. However, this petition remained unnumbered and in the SR stage for almost a year. The tribunal noted that the mere filing of a Section 34 petition does not amount to a continuation of arbitration proceedings, especially after a settlement has been reached.

6. Initiation of Corporate Insolvency Resolution Process (CIRP):
The tribunal found that the debt and default had been established by the Operational Creditor, supported by various supply bills and the arbitration award. The tribunal emphasized that the case involved an inability to pay the debt by the Corporate Debtor, justifying the initiation of CIRP. The tribunal appointed Mr. S. Amarendran as the Interim Resolution Professional and ordered the initiation of the CIRP with a moratorium on certain actions against the Corporate Debtor.

Conclusion:
The petition was admitted under Section 9(5) of the IBC, 2016, and the moratorium came into effect. The tribunal directed the Operational Creditor to pay Rs. 1,00,000/- to the Interim Resolution Professional for expenses and mandated the IRP to take necessary steps as per the statute. The powers of the Board of Directors of the Corporate Debtor were superseded, and the CIRP was initiated. The tribunal concluded that the petition justified the initiation of proceedings due to the clear case of debt and default.