2020 (7) TMI 268 - Tri - Companies Law

Maintainability of application - initiation of CIRP - termination of employment - salary and other dues - Corporate Debtor failed to make repayment of its debt - existence of debt and dispute or not - legally enforceable debt or not - HELD THAT - At the very beginning that these proceedings under the Code are summary proceedings where even if there was a debt the same should be clear and undisputed and the default as defined under section 3(12) of the Code should be clearly established. There is no scope for investigation under the Code further than what has been brought on record. Further it is a settled position of law that the provisions of Code cannot be invoked for recovery of outstanding amount but can be invoked to initiate CIRP for justified reasons as per the Code. The Hon ble Supreme Court in the case of MOBILOX INNOVATIONS PRIVATE LIMITED VERSUS KIRUSA SOFTWARE PRIVATE LIMITED 2017 (9) TMI 1270 - SUPREME COURT has inter alia held that Code 2016 is not intended to be a substitute to a recovery forum and cannot be used to jeopardize the financial health of an otherwise solvent company by pushing it into insolvency. The Appointment Letter is placed on record. Since the appointment was made even prior to the incorporation of the Corporate Debtor it is evident that there could not have been any Board Resolution to discuss propose or confirm such an appointment. Nothing has been brought on record to indicate that any such confirmation was done subsequently by the Board. In this situation it cannot be said that any right to payment or claim arose in the hands of the Operational Creditor against the Corporate Debtor in the absence of any decision from the Board - the payments due to the Operational Creditor depended upon his performance and merit and at the discretion of the Management. Clauses 17 and 18 of the Appointment Letter also mention a Code of Conduct and binding rules regarding the discipline and conduct of the Petitioner during the course of his employment with the Corporate Debtor. The Operational Creditor had served a Notice dated 10.04.2017 also demanding an amount of 18, 25, 000/- towards arrears of salary. Notably this amount is different from the amount mentioned in the Demand Notice sent later on 08.09.2017 under the provisions of the Code (mentioned in this Petition) being 28, 37, 481 indicating that there was no clarity on the debt even by the calculations of the Petitioner. This would also mean that either there was no valid Demand Notice or there is a defective Petition which should be dismissed on this ground alone. There was no debt and/or in any case the same was substantially disputed by the Corporate Debtor with the Petitioner/Operational Creditor before different forums as well as per its own records much prior to the Demand Notice - Petition dismissed.

Issues Involved:
1. Existence of Operational Debt
2. Dispute Regarding Debt
3. Appointment and Termination Validity
4. Criminal Allegations and Investigations
5. Limitation Period for Claims
6. Solvency of the Corporate Debtor
7. Procedural Compliance under IBC

Detailed Analysis:

1. Existence of Operational Debt:
The Operational Creditor claimed arrears of salary amounting to ?28,37,481, including interest, as an operational debt. The Tribunal examined whether this debt was clear and undisputed. The Appointment Letter dated 02.05.2012, issued even before the company's incorporation, raised questions about its validity. The Tribunal found no subsequent Board confirmation of this appointment, indicating no clear right to payment or claim against the Corporate Debtor. The Tribunal concluded that no debt arose as per the provisions of the Code.

2. Dispute Regarding Debt:
The Corporate Debtor contended that there was a pre-existing dispute regarding the alleged debt. The Tribunal noted that the Independent Auditor's Report and criminal cases against the Operational Creditor and others indicated serious allegations of embezzlement and misappropriation of funds. The Tribunal emphasized that these disputes were substantial and not a feeble legal ruse to evade repayment. The Tribunal found that the debt, if any, was clearly disputed.

3. Appointment and Termination Validity:
The Tribunal scrutinized the validity of the Operational Creditor's appointment as VP (Operations) and his subsequent termination. The Appointment Letter, issued before the company's incorporation, lacked Board confirmation. Clauses in the Appointment Letter tied salary payments to performance and management discretion, further complicating the claim. The Tribunal concluded that the appointment and termination were not validly established, and any right to payment was in dispute.

4. Criminal Allegations and Investigations:
The Corporate Debtor highlighted ongoing criminal investigations against the Operational Creditor and others for embezzlement and misappropriation. The Tribunal noted that the Hon'ble Sessions Court had rejected the anticipatory bail petition, indicating prima facie evidence of guilt. The Tribunal found that these criminal allegations constituted a substantial pre-existing dispute, impacting the validity of the debt claim.

5. Limitation Period for Claims:
The Tribunal considered the limitation period for the Operational Creditor's claims, which related to FY 2012-13 onwards. The Code came into effect in 2016, and the petition was filed in 2017. The Tribunal found that part of the alleged debt was barred by limitation even before the Code's commencement. The Tribunal emphasized that the IBC could not be used to revive a time-barred debt, and the delay in filing indicated an intent to counter criminal proceedings rather than recover a genuine debt.

6. Solvency of the Corporate Debtor:
The Tribunal assessed the Corporate Debtor's solvency, noting that it was a viable going concern with ongoing business operations and support from financial institutions. The Tribunal highlighted that Canara Bank had extended loans to the company, and the company had repaid a significant loan to Karnataka Bank. The Tribunal concluded that the Corporate Debtor was solvent and not a fit case for initiating CIRP.

7. Procedural Compliance under IBC:
The Tribunal examined procedural compliance under the IBC, noting that the Operational Creditor failed to provide a certificate from financial institutions confirming no payment of unpaid operational debt. The Tribunal found that the petition lacked necessary documentation and evidence to prove the existence of a valid operational debt or default. The Tribunal emphasized that the IBC proceedings were not meant for recovery but for resolving insolvency, which was not established in this case.

Conclusion:
The Tribunal dismissed the Company Petition, finding no clear and undisputed debt, substantial pre-existing disputes, invalid appointment and termination, barred claims by limitation, and the Corporate Debtor's solvency. The petition was deemed an attempt to counter criminal proceedings rather than recover a genuine debt, and procedural non-compliance further warranted dismissal.

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