2017 (9) TMI 535 - Tri - Insolvency and Bankruptcy

Proceedings under Insolvency and Bankruptcy Code, 2016 - default of operational debtor - Held that - We find it safe to conclude that there has been default within the meaning of Section 3(12) read with Sections 4 and 6 of the Code. The judgment and decree of the Civil Court in a suit filed under Order XXXVII CPC clearly shows that the operational debtor is in default when the amount has not been paid on the demand raised by issuing a demand notice under Section 8 of the Code. The provisions of Section 123(1)(2) of the Insolvency Act, 1986 of England is relevant in this regard. Section 123(1) of the English Act talks of inability to pay debts if in execution or other process issued on a judgment, decree or order of any Court in favour of a Creditor of the Company is retuned unsatisfied in whole or part then a Company is deemed unable to pay its debts. A seemingly similar expression has been used in Section 3(12) of the Code describing it as default which can be read with Section 6 of the Code. Once there is a default then according to Section 123(1) of the English Act in cases of such like default a Company is deemed unable to pay its debts. The expression default is wider than inability to pay. Therefore, it takes into its sweep the cases where default has occurred irrespective of anything else. Therefore, we find that it is a fit case for triggering the Insolvency Resolution Process. As a sequel to the above discussion, this petition is admitted. We direct that Interim Insolvency Resolution Professional shall immediately make public announcement with regard to admission of this application under Section 7 of the Code

Issues:
1. Application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Claim of being an 'Operational Creditor' against a 'Corporate Debtor'.
3. Total debt amount claimed based on a decree passed under Order XXXVII of Civil Procedure Code.
4. Transfer of petition from Delhi High Court to the National Company Law Tribunal.
5. Demand notice issued and service confirmed.
6. Dishonored cheques issued by the respondent.
7. Rejection of application for leave to defend by the Trial Court.
8. Decree passed in favor of the petitioner.
9. Default in payment leading to the initiation of the Insolvency Resolution Process.
10. Admission of the petition and declaration of moratorium.
11. Directions for the Interim Insolvency Resolution Professional.
12. Referral to Insolvency and Bankruptcy Board of India for appointing an Insolvency Professional.

Analysis:
1. The judgment pertains to an application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016, where the petitioner claims to be an 'Operational Creditor' against a 'Corporate Debtor'. The total debt amount claimed is based on a decree passed under Order XXXVII of Civil Procedure Code, highlighting the legal basis of the claim.

2. The petition was transferred from the Delhi High Court to the National Company Law Tribunal in compliance with the Ministry of Corporate Affairs' notification, emphasizing the jurisdictional shift and procedural adherence.

3. The issuance and confirmation of a demand notice, along with the service details, establish the petitioner's efforts to demand payment from the respondent, showcasing procedural compliance and attempts at resolution before escalating the matter.

4. The judgment details the dishonored cheques issued by the respondent, indicating a default in payment and non-compliance with financial obligations, which forms a significant basis for the initiation of insolvency proceedings.

5. The Trial Court's rejection of the respondent's application for leave to defend, followed by the decree in favor of the petitioner, highlights the legal proceedings and the judicial determination of the respondent's liability, reinforcing the creditor's claim.

6. The judgment emphasizes the default in payment as a trigger for the Insolvency Resolution Process, citing relevant legal provisions and drawing parallels with international insolvency laws to support the decision to admit the petition and declare a moratorium.

7. Detailed directions are provided for the Interim Insolvency Resolution Professional, outlining responsibilities, obligations, and prohibitions during the moratorium period, ensuring strict adherence to the provisions of the Insolvency and Bankruptcy Code for effective resolution.

8. The referral to the Insolvency and Bankruptcy Board of India for appointing an Insolvency Professional underscores the procedural requirements and the importance of timely resolution without compromising the statutory timelines, ensuring a structured approach to insolvency proceedings.

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