2019 (7) TMI 104 - Tri - Insolvency and Bankruptcy

Admissibility of application - initiation of Corporate Insolvency Resolution Process - default in payment of dues - time limitation of service of order - HELD THAT - On perusal of the material available on record it is found that service of notice is complete. That, despite issuance of notice by the petitioner, the respondent has not made payment of outstanding amount nor raised any dispute. That, the last invoice raised upon the respondent is dated 21.04.2018 and, therefore, the petition is filed well within time. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the Insolvency Resolution Process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or instalment amount. Even otherwise, the important condition precedent is an occurrence of a default. On perusal of the documents on record, it is evident that the default has occurred as stated hereinabove i.e. the execution of settlement agreement by the corporate debtor and the part payment thereon confirming the operational debt is due and payable. The Application filed by the Applicant is complete in all respects - Adjudicating Authority is of the view that it is a fit case to initiate Insolvency Resolution Process by admitting the Application under Section 9(5)(1) of the Code. Petition admitted - moratorium declared.

Summary

Issues involved:
- Application under Section 9 of the Insolvency and Bankruptcy Code, 2016.
- Default in payment by the corporate debtor.
- Validity of the settlement agreement.
- Adjudication of the insolvency resolution process.
- Declaration of moratorium and its implications.

Analysis:

Issue 1: Application under Section 9 of the Insolvency and Bankruptcy Code, 2016
The application was filed under Section 9 of the Insolvency and Bankruptcy Code by the authorized signatory of the operational creditor, citing non-payment by the corporate debtor. The applicant, a manufacturer and exporter of various goods, claimed an outstanding amount along with interest. The respondent failed to make the payment despite a demand notice sent under Section 8 of the Code.

Issue 2: Default in payment by the corporate debtor
The respondent admitted to part payments but failed to clear the outstanding amount. A settlement agreement was reached between the parties, but the respondent defaulted on further payments, citing bank operations being frozen as a reason for non-payment. The Adjudicating Authority found that the default had occurred, as evidenced by the settlement agreement and non-payment of the outstanding amount.

Issue 3: Validity of the settlement agreement
Although a settlement agreement was executed between the parties, the respondent's failure to fulfill the agreed payment terms led to the conclusion that a default had taken place. The Adjudicating Authority determined that the operational debt was due and payable, establishing the applicant as an operational creditor under the Code.

Issue 4: Adjudication of the insolvency resolution process
Upon review of the material on record, the Adjudicating Authority found that the applicant's claim was valid, the notice was served, and the default was established. Consequently, the Authority deemed it appropriate to initiate the insolvency resolution process by admitting the application under Section 9(5)(1) of the Code. An interim resolution professional was proposed, and the moratorium was declared, prohibiting certain actions against the corporate debtor.

Issue 5: Declaration of moratorium and its implications
The Adjudicating Authority directed the Insolvency Resolution Professional to make a public announcement of the initiation of the Corporate Insolvency Process and called for the submission of claims. The moratorium was declared, prohibiting various actions against the corporate debtor, with exceptions for specific transactions. The order of moratorium was to remain in effect until the completion of the corporate insolvency resolution process or until further orders were passed.

This comprehensive analysis covers the key issues addressed in the judgment delivered by the National Company Law Tribunal, Ahmedabad Bench, in the case involving an operational creditor and a corporate debtor under the Insolvency and Bankruptcy Code, 2016.