2023 (1) TMI 1278 - AT - Insolvency and Bankruptcy

Validity of demand notice issued in terms of Section 8 of IBC - case of appellant is that the Demand Notice was defective because it was sent by Jignesh Ajit Ganatra, who was subsequently appointed as IRP by the impugned order and the said IRP was a related party in terms of Section 5(24)(h) of the Code - HELD THAT - A close scrutiny of the Section 5(24)(h) of IBC would show, firstly, that it relates to the Corporate Debtor and not to the Operational Creditor and secondly the Appellant was to lead evidence that the Director, Partner or Manager was accustomed to act on the directions or instructions of the said IP. Therefore, Section 5(24)(h) of the Code is not at all applicable to the facts and circumstances of the present case and thus the arguments raised in this regard, is hereby rejected - the provision is not applicable because the dispute is between two corporate entities and not in respect of the individuals. Whether an application under section 9 of the Code cannot proceed in view of fact that the principal amount has already been paid and only the component of interest is remaining? - HELD THAT - It is to be seen at the time of the threshold when the application is filed under Section 9 of the Code as to whether it is pertaining only to the component of interest - the second contention is hereby rejected. It is pertinent to mention that this court was of the view that in order to help the Corporate Debtor to remain a going concern, some time be provided to the Corporate Debtor for the purpose of settling its debts before the CoC is constituted but despite taking so many dates and even on 06.01.2023, a specific order was passed but the Appellant has failed to consolidate funds for the purpose of discharging his liability not only towards the Respondent who is the Operational Creditor but also towards various Interveners who had filed applications during the pendency of this Appeal. There are no merit in the present appeal and the same is hereby dismissed.

Summary

Issues:
1. Validity of the demand notice served under Section 8 of the Insolvency and Bankruptcy Code.
2. Applicability of Section 5(24)(h) of the Code regarding related party status.
3. Whether the application under Section 9 of the Code can proceed when the principal amount has been paid.
4. Failure to settle debts and discharge liabilities by the Appellant.

Issue 1: Validity of the Demand Notice:
The appeal challenged the order admitting Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor based on a defective demand notice served under Section 8 of the Insolvency and Bankruptcy Code. The Appellant argued that the notice was sent by an Insolvency Professional who later became the Interim Resolution Professional (IRP), raising concerns about related party status. The Appellant claimed to have paid the principal amount but disputed the interest component. Reference was made to previous decisions to support the argument.

Issue 2: Applicability of Section 5(24)(h) of the Code:
The question arose whether the IRP who served the notice could be considered a related party under Section 5(24)(h) of the Code. The Tribunal analyzed the provision which pertains to the Corporate Debtor and requires evidence that a Director, Partner, or Manager acted on the directions of the IRP. The Tribunal concluded that this provision did not apply to the present case, rejecting the argument. Reference was also made to Section 5(24-A)(h) but deemed inapplicable due to the corporate nature of the dispute.

Issue 3: Proceeding with Application under Section 9:
The Appellant contended that the application under Section 9 of the Code should not proceed as the principal amount had been paid, leaving only the interest component outstanding. Citing previous judgments, the Appellant argued against the continuation of the application. The Tribunal dismissed this argument, stating that the application's validity is determined at the time of filing and the cited decisions were not applicable.

Issue 4: Failure to Settle Debts and Liabilities:
Despite efforts to settle debts and ongoing discussions with the Union Bank of India, the Appellant failed to pay the remaining interest amount and discharge liabilities. The Tribunal noted the Appellant's failure to consolidate funds for debt repayment, leading to prolonged litigation. The Union Bank of India confirmed the unlikelihood of fund raising by the Appellant. Consequently, the Tribunal dismissed the appeal, emphasizing the Appellant's failure to meet obligations and the prolongation of litigation.

In conclusion, the Tribunal dismissed the appeal, finding no merit in the arguments presented. The decision was based on the analysis of the demand notice validity, related party status, the application's continuation despite partial payment, and the Appellant's failure to settle debts and liabilities. All applications filed during the appeal were disposed of, with no order as to costs.