2019 (8) TMI 783 - AT - Insolvency and Bankruptcy

Admissibility of application - initiation of Corporate Insolvency Resolution Process - Section 9 of the Insolvency and Bankruptcy Code, 2016 - failure to make repayment -Taking into consideration the fact that the Respondent (Corporate Debtor) was ready to pay the amount subject to the process of the GST, the Adjudicating Authority refused to entertain the application under Section 9 of the I B Code - HELD THAT - We find that the Respondent had taken a plea before the Adjudicating Authority that it is agreeable to pay the amount subject to the registration of the Operational Creditor under the GST Act, 2017 . It further appears that before the admission of the application, the Respondent was ready with the draft for ₹ 3,36,978.48. However, the Appellant is not inclined to accept the same. From the aforesaid action of the Appellant i.e., Operational Creditor , we find that the Appellant initiated corporate insolvency resolution process with fraudulently and malicious intent for any purpose other than the resolution of insolvency or liquidation and, therefore, it is clearly covered under Section 65 of the I B Code. Appeal dismissed.

Summary

Issues:
- Rejection of application under Section 9 of the Insolvency and Bankruptcy Code, 2016
- Dispute regarding outstanding due amount of ?3,26,807.12
- Respondent's willingness to pay subject to GST registration
- Refusal to entertain application under Section 9 due to readiness of Respondent to pay
- Appellant's refusal to accept the Demand Draft
- Allegation of fraudulent initiation of corporate insolvency resolution process

Analysis:
1. The appeal was filed by an Operational Creditor against the rejection of the application under Section 9 of the Insolvency and Bankruptcy Code, 2016. The Appellant claimed an outstanding due amount of ?3,26,807.12 from the Corporate Debtor, who allegedly failed to make the payment despite repeated requests and confirmation of the amount by the Corporate Debtor's ledger account.

2. The Respondent, Corporate Debtor, contended that it was willing to process the invoices subject to the Appellant registering under the GST Act, 2017. The Respondent cited an agreement between the parties for dispute resolution under the Trading Member and authorized Person Agreement, with provisions of the GST Act being applicable.

3. The Adjudicating Authority refused to entertain the application under Section 9 of the I&B Code considering the Respondent's readiness to pay the outstanding amount subject to GST processing. Subsequently, the matter was taken up, and the Respondent agreed to pay the claimed amount via a Demand Draft, which the Appellant refused to accept.

4. The Appellant's refusal to accept the Demand Draft led to a finding that the Appellant initiated the corporate insolvency resolution process with fraudulent intent, not for the resolution of insolvency or liquidation, falling under Section 65 of the I&B Code. Therefore, the Tribunal dismissed the appeal without costs, allowing the Appellant to approach the Respondent within 15 days to receive the Demand Draft.

5. The judgment highlights the importance of good faith dealings and adherence to legal procedures in insolvency matters, emphasizing the consequences of fraudulent initiation of the resolution process. The decision serves as a cautionary tale regarding the misuse of insolvency mechanisms for purposes other than their intended scope, ensuring fair and just resolution in corporate matters.