2019 (9) TMI 1110 - Tri - Insolvency and Bankruptcy

Admissibility of application - initiation of CIRP - Corporate debtor - Section 9 of the Insolvency and Bankruptcy Code, 2016 read with Rule 6 of the Insolvency Bankruptcy (Application to Adjudicating Authority) Rules, 2016 - HELD THAT - Recovery is an individual effort by a creditor to recover its dues through a process that has debtor and creditor on opposite sides. When creditors recover their dues one after another or simultaneously from the available assets of the firm, nothing may be left in due course. Thus, while recovery bleeds the corporate debtor to death, resolution endeavours to keep the corporate debtor alive. In fact, the I B Code prohibits and discourages recovery in several ways. Petition dismissed.

Summary

Issues:
1. Application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 to trigger Insolvency Resolution Process.
2. Dispute regarding outstanding payments between operational creditor and corporate debtor.
3. Admissibility of the application for Insolvency Resolution Process.

Analysis:
1. The application was filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 by the operational creditor to initiate the Insolvency Resolution Process against the corporate debtor. The applicant, engaged in manufacturing phosphate, had delivered materials to the respondent for its business activities, but despite reminders, did not receive payment. The respondent made partial payments under the belief of full settlement, leading to a dispute over the outstanding amount.

2. The respondent contended that it had made payments and was willing to pay the remaining amount as per its ledger account maintained by the applicant. The applicant, however, claimed a higher sum including interest and legal charges. Both parties presented their arguments, with the respondent asserting a genuine attempt to settle the dues and disputing the interest calculation and default date claimed by the applicant.

3. The tribunal considered the business transactions between the parties, the attempts to settle the outstanding amount, and the correspondence exchanged. Referring to relevant legal precedents, the tribunal emphasized the objective of the Insolvency and Bankruptcy Code to promote resolution over liquidation, maximize asset value, and balance stakeholders' interests. It highlighted the importance of preserving a going concern and protecting employees' livelihoods.

4. Based on the findings and legal principles, the tribunal dismissed the application, noting that recovery efforts should be pursued through individual creditor actions rather than initiating insolvency proceedings, especially when a resolution could adversely affect a going concern. The tribunal emphasized the distinction between recovery efforts and resolution processes, emphasizing the Code's discouragement of recovery actions that could harm the corporate debtor's viability. The application was thus rejected, with no costs imposed on either party.