2018 (7) TMI 1633 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - outstanding debt - Held that - It is the case of the Operational Creditor that the aforesaid amount of ₹ 30/- crores was advanced by it to Monnet Ispat for construction of power plant and supply of ancillary equipment. The Operational Creditor is to stand in the shoes of its Predecessor-in-interest. The relationship between them was that of supplier of goods and services which is fully covered by the provisions of Section 5(20) & 5(21) of the Code. Therefore, there is no escape from the conclusion that the applicant is an Operational Creditor and the argument to the contrary advanced by Mr. Sibal would not be sustainable. On the occurrence of default, a notice under Section 8 of the Code is required to be issued as is evident from the opening sentence of Section 8(1) of the Code. The fact that the amount has become due becomes evident from the payment sought to be made by three cheques which were taken back by the Corporate Debtor and the amount remained unpaid. The intention to recover and the willingness to pay stand established which was followed by issuance of a demand notice. Therefore, acknowledgement of debt is established by executing the tripartite agreement. The default has also been established on account of issuance of cheques and its non-payment has also been established. Therefore, it cannot be argued that default has not occurred. The expression default within the meaning of Section 3(12) of the Code has been defined to mean non-payment of debt when whole or any part of the amount of debt has become due and payable and is not paid by the Corporate Debtor. If this cannot be regarded as default what else could be so regarded. Argument that the notice of demand has been served only on the Director would also lack substance as Rule 5(2)(b) of the Rules clearly postulates that demand notice or the copy of the invoice demanding payment may be delivered to the Corporate Debtor by electronic mail service to a whole time Director or designated partner etc. Once the demand notice was served on the Director then the requirement of the Rules stands satisfied. Under Section 20 of the Companies Act, 2013 read with Section 27 of the General Clauses Act such a service would also be regarded as good service. In any case the Corporate Debtor cannot take shelter of these types of technical submission especially when the debt has not been disputed and in fact stand acknowledged in the tripartite agreement, by issuing credit notes, by issuing cheques and other overwhelming evidence on record. In view of the above therefore, we do not find any substance in the objection raised on behalf of the Corporate Debtor and the same are hereby rejected. Petition admitted.

Summary

Issues Involved:
1. Whether the applicant qualifies as an 'Operational Creditor' under the Insolvency and Bankruptcy Code, 2016.
2. Whether the tripartite agreement and the assignment of debt are valid and enforceable.
3. Whether there has been an occurrence of default by the Corporate Debtor.
4. Whether the notice of demand was properly served.
5. Whether the application for initiating the Corporate Insolvency Resolution Process (CIRP) is meritorious.

Detailed Analysis:

1. Whether the applicant qualifies as an 'Operational Creditor' under the Insolvency and Bankruptcy Code, 2016:
The tribunal determined that the relationship between the Operational Creditor and the Corporate Debtor was established through various correspondences and the tripartite agreement. The Operational Creditor had advanced ?30 crores to Monnet Ispat for construction and supply of ancillary equipment. The debt was assigned to the Operational Creditor by Monnet Ispat, making the applicant an 'Operational Creditor' as defined under Sections 5(20) and 5(21) of the Code. The tribunal concluded that the applicant qualifies as an Operational Creditor, rejecting the Corporate Debtor's argument to the contrary.

2. Whether the tripartite agreement and the assignment of debt are valid and enforceable:
The tribunal examined the tripartite agreement dated 27.05.2015, which clearly stipulated that the Corporate Debtor would pay ?30 crores to the Operational Creditor. The Corporate Debtor had issued credit notes and cheques, thereby acknowledging the debt. The tribunal rejected the Corporate Debtor's argument regarding the insufficiency of stamp duty and the necessity of registration under Section 17 of the Registration Act, as the tripartite agreement did not pertain to any securitized loan or debt assigned with underlying securities. Thus, the agreement and the assignment of debt were deemed valid and enforceable.

3. Whether there has been an occurrence of default by the Corporate Debtor:
The tribunal found that the default was established through the issuance of cheques by the Corporate Debtor, which were later requested to be returned due to cash flow issues, and the subsequent non-payment of the debt. The issuance of a demand notice under Section 8 of the Code further evidenced the default. The tribunal concluded that the default occurred as defined under Section 3(12) of the Code, which means non-payment of debt when it becomes due and payable.

4. Whether the notice of demand was properly served:
The tribunal addressed the objection regarding the service of the demand notice on the Corporate Debtor's Director. It was held that the service of notice on the Director was valid under Rule 5(2)(b) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, and Section 20 of the Companies Act, 2013 read with Section 27 of the General Clauses Act. The tribunal rejected the argument that the notice was improperly served.

5. Whether the application for initiating the Corporate Insolvency Resolution Process (CIRP) is meritorious:
After considering all objections and arguments, the tribunal found the application meritorious and warranted admission. The tribunal admitted the petition and appointed an Interim Resolution Professional (IRP) to initiate the CIRP. A moratorium was declared under Section 14 of the Code, imposing prohibitions on suits, asset transfers, and recovery actions against the Corporate Debtor.

Conclusion:
The tribunal admitted the application under Section 9 of the Insolvency and Bankruptcy Code, 2016, and initiated the Corporate Insolvency Resolution Process against the Corporate Debtor. An Interim Resolution Professional was appointed, and a moratorium was declared to ensure the protection of the Corporate Debtor's assets and the continuation of essential services. The objections raised by the Corporate Debtor were rejected, and the tribunal emphasized the necessity for the Corporate Debtor and its management to cooperate with the IRP.