2019 (10) TMI 1154 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor - the principal stand taken is that the petitioner is not an Operational Creditor of Corporate Debtor - HELD THAT - The Corporate Debtor has undertaken the assets and liabilities of erstwhile proprietorship firm-Royal Appliances and continued making payment to the Operational Creditor in lieu of the alloy ingots supplied by it to the proprietorship firm-Royal Appliances. There is no dispute raised or registered with Information Utility which may become the basis to reject the petition. The aforesaid entries have been made as extracted in the preceding paras in the books of account of the Corporate Debtor itself. The amount is due and payable - The claim made by the petitioner is within the period of limitation and must be regarded as an operational debt within the meaning of Section 5 (21) of the Code, 2016. This petition is admitted and Mr. Sandeep Jain is appointed as an Interim Resolution Professional - petition admitted - moratorium declared.

Issues Involved:
1. Whether the petitioner is an Operational Creditor of the Corporate Debtor.
2. Whether the Corporate Debtor owes any operational debt to the petitioner.
3. Whether the payment made by the Corporate Debtor to a third party can be considered as payment made on behalf of the petitioner.
4. Whether the petition is within the period of limitation.
5. Appointment of an Interim Resolution Professional.
6. Declaration of moratorium and its implications.

Issue-wise Detailed Analysis:

1. Whether the petitioner is an Operational Creditor of the Corporate Debtor:
The petitioner, M/s. Oyster Steel and Iron Private Limited, filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016, seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against the respondent, M/s. Royal Kitchen Appliances Private Limited. The petitioner claimed to have supplied goods, resulting in an outstanding amount of INR 1,82,97,880/- including interest. The Corporate Debtor argued that the petitioner is not an Operational Creditor as no operational debt is owed to it under Section 5(21) of the Code, asserting that the debt arose from goods supplied to a proprietorship concern, Royal Appliances, in 2013, and not to the Corporate Debtor.

2. Whether the Corporate Debtor owes any operational debt to the petitioner:
The petitioner contended that the Corporate Debtor took over the business, liabilities, and assets of Royal Appliances through a 'slump sale' on 24.07.2014. The ledger accounts produced by the Corporate Debtor for various periods showed outstanding amounts and payments made to the petitioner, indicating acknowledgment of the debt. The Tribunal found that the Corporate Debtor had indeed made payments due by Royal Appliances and acknowledged the debt, thus establishing that the Corporate Debtor owes an operational debt to the petitioner.

3. Whether the payment made by the Corporate Debtor to a third party can be considered as payment made on behalf of the petitioner:
The Corporate Debtor claimed to have paid a significant amount to M/s. Laxmi Wire Netting and Weaving Factory, allegedly on behalf of the petitioner. The Tribunal repeatedly asked for any resolution authorizing such payment, but none was provided. It was emphasized that companies must act through board resolutions, and there was no document showing authorization from the petitioner for such payments. Therefore, the Tribunal rejected this defense as moonshine, stating that the payment to the third party could not be regarded as payment made on behalf of the petitioner.

4. Whether the petition is within the period of limitation:
The Tribunal concluded that the claim made by the petitioner is within the period of limitation and must be regarded as an operational debt under Section 5(21) of the Code, 2016.

5. Appointment of an Interim Resolution Professional:
The petitioner did not propose any Interim Resolution Professional (IRP) and left it to the Tribunal's discretion. The Tribunal appointed Mr. Sandeep Jain as the IRP from the panel recommended by the Insolvency and Bankruptcy Board of India (IBBI). The IRP was directed to file his written communication and all relevant papers immediately before the Registrar of the Tribunal.

6. Declaration of moratorium and its implications:
The Tribunal declared a moratorium under Section 14 of the Code, imposing prohibitions on:
- Institution or continuation of suits or proceedings against the Corporate Debtor.
- Transferring, encumbering, or disposing of any assets or legal rights of the Corporate Debtor.
- Actions to foreclose, recover, or enforce any security interest created by the Corporate Debtor.
- Recovery of any property by an owner or lessor occupied by the Corporate Debtor.

The Tribunal clarified that the moratorium does not apply to transactions notified by the Central Government or a surety in a contract of a guarantor to a Corporate Debtor. The IRP was directed to make a public announcement regarding the admission of the application within three days and perform all functions as per Sections 15, 17, 18, 19, 20, and 21 of the Code with utmost integrity and honesty. The Operational Creditor was directed to deposit a sum of INR 2 lakhs with the IRP for expenses, subject to adjustment by the Committee of Creditors.

The Tribunal also directed the ex-management and auditors to provide all documents and information required by the IRP within a week, failing which coercive steps would follow. The IRP was instructed to protect and preserve the value of the Corporate Debtor's property and manage its affairs in accordance with the Code.

The Tribunal ordered the office to communicate the order to all relevant parties and update the status of the Corporate Debtor on the Registrar of Companies' website, notifying the public of the petition's admission.

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