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2020 (5) TMI 324 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - existence of debt and dispute - the contention of the corporate debtor is that the operational creditor has to render services to the Fund Manager and it is the Fund Manager who shall pay to the operational creditor/Asset Advisor - HELD THAT - It is true that there was agreement between the Fund Manager, viz. Messrs Lighthouse Canton Private Limited and the operational creditor. Messrs Lighthouse Canton Private Limited is the Fund Manager of the Fund. According to the said Advisory Agreement, the operational creditor has to render services to the Fund Manager and fee is also to be paid by the Fund Manager. However, the Advisory Agreement was subsequently amended and as a consequence, Addendum Agreement was entered into between the Fund Manager, the operational creditor, the corporate debtor and other subsidiaries of the Fund. The Addendum was executed among them on 1-3-2018. The contention of the operational creditor that by virtue of the terms of the Addendum, the operational creditor was empowered to raise Invoices on the corporate debtor and payment to be made soon after raising of Invoices. The operational creditor is relying on the Addendum shown as Annexure-7 starting from page 105 of the Paper Booklet. The corporate debtor is a party to this Addendum. Terms of Addendum are binding on the corporate debtor. It is an amendment to the Advisory Agreement. The raising of Invoices on the corporate debtor by the operational creditor is in terms of the Clauses of the Addendum. There is neither illegality nor irregularity in raising Invoices in the name of the corporate debtor. The operational creditor has relied on the unpaid Invoices, six in number, raised on the corporate debtor, shown as Annexure-8, at pages 119-124 of the Paper Booklet filed by the operational creditor. All the Invoices are raised in the name of the corporate debtor. It is also not the case of the corporate debtor that the amount under Invoices was paid by the Fund Manager. The operational creditor can proceed only against the corporate debtor, because the Addendum has expressly provides raising Invoices in the name of the Fund Subsidiary and payment to be made by the Fund Subsidiary. The operational creditor is able to establish that it has raised Invoices for the services rendered to the corporate debtor. Debtor-creditor relationship between Corporate Debtor and the operational creditor - HELD THAT - The ultimate beneficiary is the corporate debtor for the services rendered by the operational creditor. Invoices to be raised only on the corporate debtor as per the Addendum, but not on the Fund Manager. So the relationship of debtor- creditor is existing between the corporate debtor and the operational creditor. When the corporate debtor being a party to the Addendum gave liberty to the operational creditor to raise Invoices, then it falls within the definition of 'operational debt'. So it can never be said that there was no operational debt and that there was no liability on the corporate debtor to honour the Invoices. The next contention raised by the corporate debtor that even as per the terms of Addendum, all the Invoices were to be approved by the Fund Manager before payment - HELD THAT - There was no correspondence by the corporate debtor with the operational creditor questioning the liability on the ground that there was no prior approval of the Fund Manager. Had it been the case that the Invoices were not approved by the Fund Manager, the immediate reaction from the corporate debtor was to raise objection. It is very surprising that the corporate debtor never raised such an objection, but on the other hand made part-payment as well as deducted TDS. Therefore, we are not accepting the contention of the corporate debtor that raising of Invoices is in contravention of Clauses 2.3 of the Addendum. Existence of prior dispute or not - HELD THAT - The alleged dispute between the Fund Manager and the operational creditor cannot be extended to the liability arising under the Invoices. As regards the services rendered, no dispute is raised. It cannot be said that there was prior dispute basing on the alleged notice of breach. The alleged breach is in connection with the Trade Mark. The corporate debtor is totally unconnected with the dispute. It is stated that the operational creditor registered a company with the brand name 'MN' long prior to entering into the Advisory Agreement with the Fund Manager. The dispute, if any, over Trade Mark is neither directly nor indirectly connected to the services rendered to the corporate debtor by the operational creditor. Therefore, we do not agree with the contention of the corporate debtor that there was a pre-existing dispute. The contention of the learned counsel is that mere fact that deduction of TDS does not mean that there was an admission of liability - HELD THAT - The fact is that deduction of TDS affords an additional ground that raising Invoices is proper and that they are raised in connection with the services rendered to the corporate debtor. There is no transaction other than the transaction between the corporate debtor and the operational creditor, which is of rendering services by the operational creditor to the corporate debtor. Therefore, deduction of TDS can be safely held to be in connection with raising Invoices. Thus, the operational creditor is able to establish that the corporate debtor committed default of operational debt and the petition deserves to be admitted. The Adjudicating Authority admits this Petition under section 9 of IBC, 2016, declaring moratorium for the purposes referred to in Section 14 of the Code.
Issues Involved:
1. Whether the claim of the Operational Creditor against the Corporate Debtor is valid under the Insolvency & Bankruptcy Code, 2016. 2. Whether there was a pre-existing dispute between the parties. 3. Whether the invoices raised by the Operational Creditor were approved by the Fund Manager as required. 4. Whether there is a debtor-creditor relationship between the Operational Creditor and the Corporate Debtor. Detailed Analysis: 1. Validity of the Claim under Insolvency & Bankruptcy Code, 2016: The Operational Creditor, Messrs Cerestra Advisors Private Limited, filed a petition under Section 9 of the Insolvency & Bankruptcy Code, 2016, seeking the initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, Messrs MN Takshila Industries Private Limited, for a default amounting to ?4,17,13,343/-. The petition was based on the Advisory Agreement dated 5-9-2016 and the Addendum Agreement dated 1-3-2018, which required the Corporate Debtor and its subsidiaries to pay advisory fees for services rendered. 2. Pre-existing Dispute: The Corporate Debtor contended that there was a pre-existing dispute, citing a Notice of Breach dated 29-10-2018 issued by the Fund Manager, which was prior to the Demand Notice issued by the Operational Creditor on 20-3-2019. The Tribunal found that the Notice of Breach was between the Fund Manager and the Operational Creditor and not directly involving the Corporate Debtor. The Tribunal noted that the Corporate Debtor made part-payment of ?50,00,000/- and deducted TDS after the Notice of Breach, indicating no direct dispute with the Operational Creditor regarding the invoices. 3. Approval of Invoices by Fund Manager: The Corporate Debtor argued that the invoices raised by the Operational Creditor required prior approval by the Fund Manager as per Clause 2.3 of the Addendum Agreement. The Tribunal observed that the Corporate Debtor made part-payment and deducted TDS, suggesting that there was implicit approval of the invoices by the Fund Manager. The Tribunal did not accept the Corporate Debtor's contention that the invoices were not approved, as there was no objection raised by the Corporate Debtor at the time of making part-payment or deducting TDS. 4. Debtor-Creditor Relationship: The Corporate Debtor claimed that there was no debtor-creditor relationship as the services were rendered to the Fund Manager, and any payment was contingent upon the approval of the Fund Manager. The Tribunal, however, noted that the Addendum Agreement explicitly allowed the Operational Creditor to raise invoices on the Corporate Debtor and its subsidiaries. The Tribunal concluded that the Corporate Debtor was liable to pay the advisory fees as per the Addendum Agreement, establishing a debtor-creditor relationship. Conclusion: The Tribunal admitted the petition under Section 9 of the Insolvency & Bankruptcy Code, 2016, and initiated the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Tribunal declared a moratorium as per Section 14 of the Code and appointed an Interim Resolution Professional. The Tribunal directed that the public announcement of the initiation of CIRP be made immediately and ordered the Registry to notify the Registrar of Companies, Hyderabad, to update the status of the Corporate Debtor on the MCA-21 site of the Ministry of Corporate Affairs.
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