2019 (8) TMI 782 - Tri - Insolvency and Bankruptcy

Admissibility of petition - Initiation of Corporate Insolvency Resolution Process - Corporate Debtor defaulted in repayment of the sum - Section 9 of Insolvency and Bankruptcy Code, 2016, R/w Rule 6 of Insolvency Bankruptcy (Application to the Adjudicating Authority) Rules, 2016 - main contention of the Learned Counsel, Respondent is not a Corporate Person within the meaning of Section 3 (7) of IBC, 2016 - HELD THAT - The Respondent is a Financial Service Provider within the meaning of section 3 (17) of the Code and that it is exempted from the purview of I B, Code. The contention of Operational Creditor that Respondents withheld payment for June, 2017 even before the advent of GST Act. Thus, Respondent committed default. As far as bill for June, 2017 is concerned, the Respondent is contending that action cannot be initiated against it under the Code. Secondly, consolidated claim is made over when genuine dispute was raised and claim may include the dues for June 2017. However, the main grounds urged that Petitioner / Operational Creditor cannot initiate action against Respondent under provisions of I B Code - the present Application under Section 9 of the Code is not maintainable against Respondent. The Petitioner stated that Respondent did not pay the money due to him when demanded. It is interesting to note that Respondent was prepared to pay the money and settle the claim of Petitioner before admission. He ought to have accepted the same and one cannot be permitted to take recourse to the provisions of the Code for settling personal vendetta. CIRP cannot be initiated against the Company when it is prepared to pay or settle the claim of the Petitioner. Petition rejected.

Summary

Issues Involved:
1. Whether the Corporate Debtor is a Financial Service Provider and thus excluded from the definition of Corporate Person under the Insolvency and Bankruptcy Code (IBC), 2016.
2. Whether there was a pre-existing dispute between the Petitioner and the Corporate Debtor prior to the issuance of the demand notice.
3. Whether the petition under Section 9 of the IBC, 2016 is maintainable against the Corporate Debtor.
4. The relevance of the Corporate Debtor's willingness to settle the claim before the admission of the petition.

Issue-wise Detailed Analysis:

1. Whether the Corporate Debtor is a Financial Service Provider and thus excluded from the definition of Corporate Person under the Insolvency and Bankruptcy Code (IBC), 2016:

The Corporate Debtor contended that it is a financial service provider and does not fall within the definition of Corporate Person as per Section 3(7) of the IBC, 2016. The Corporate Debtor is registered under the Securities and Exchange Board of India (SEBI) as a stockbroker and is engaged in stock market broking, depository participant services, registrar and share transfer, and merchant banking. The Tribunal examined the definitions under Sections 3(15), 3(16), 3(17), and 3(18) of the IBC. It was concluded that the Corporate Debtor, being a registered entity under SEBI and engaged in financial services, qualifies as a Financial Service Provider. Therefore, it is excluded from the definition of Corporate Person under the IBC, 2016.

2. Whether there was a pre-existing dispute between the Petitioner and the Corporate Debtor prior to the issuance of the demand notice:

The Corporate Debtor argued that there was a pre-existing dispute regarding the Petitioner’s registration under the GST Act, 2017. The Petitioner was requested to register under the GST Act, which led to a delay in payment. The Tribunal noted that the Corporate Debtor had raised a genuine dispute regarding the GST registration requirement and had even obtained a demand draft to settle the claim once the Ministry of Finance clarified that GST registration was not necessary. Thus, the Tribunal found that there was a pre-existing dispute between the parties.

3. Whether the petition under Section 9 of the IBC, 2016 is maintainable against the Corporate Debtor:

Given the finding that the Corporate Debtor is a Financial Service Provider, the Tribunal held that the petition under Section 9 of the IBC, 2016 is not maintainable against the Corporate Debtor. The Tribunal relied on the decision of the Hon'ble NCLAT in Randhiraj Thakur v. M/s Jindal Saxena Financial Services & another, which held that financial service providers are excluded from the purview of the IBC.

4. The relevance of the Corporate Debtor's willingness to settle the claim before the admission of the petition:

The Tribunal noted that the Corporate Debtor had shown a willingness to settle the claim by obtaining a demand draft and remitting the amount to the Petitioner’s account, which the Petitioner refused. The Tribunal emphasized that the Petitioner’s refusal to accept the payment indicated an attempt to use the Tribunal for personal vendetta rather than for genuine resolution of insolvency. The Tribunal held that CIRP cannot be initiated against a company willing to settle the claim before the admission of the petition.

Conclusion:

The Tribunal rejected the petition on the grounds that the Corporate Debtor is a Financial Service Provider and thus excluded from the purview of the IBC, 2016. Additionally, the existence of a pre-existing dispute and the Corporate Debtor's willingness to settle the claim before the admission of the petition further supported the rejection of the petition.