2020 (10) TMI 5 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - pre-existing dispute or not - Service of notice - whether a notice of dispute has been received by Sidana and the application is required to be rejected on this ground? - HELD THAT - The dispute sought to be raised on the basis of undated letter received in June, 2018 is a patently feeble legal argument or an assertion of fact unsupported by evidence and is spurious, hypothetical or illusory. Therefore, the pre-existence of the dispute cannot be accepted. Application in Form No.5 - only objection taken by Bhandari Hosiery was in respect of the petition being instituted in the name of the proprietorship concern - HELD THAT - This objection was considered and vide order dated 29.10.2019, opportunity was given to Sidana to rectify the defect in the application and the defect was rectified vide diary No.6135, dated 05.11.2019. The copies of invoices as well as the ledger account of Bhandari Hosiery in the books of Sidana have been enclosed with the petition to show that debt of ₹ 2,20,116/- is outstanding and in default. It is discussed above that demand notice dated 20.08.2018 was sent by Sidana under Section 8 of the Code and notice of dispute was received vide letter dated 28.08.2018 - the notice cannot be treated as a notice of pre-existing dispute. There is no proposal for appointment of IRP and, therefore, the pendency of disciplinary proceedings pending against the proposed Resolution Professional does not arise. The conditions provided for in Section 9(5) (i) of the Code are satisfied in the present case - Application admitted - moratorium declared.

Summary

Issues Involved:
1. Locus-standi of a proprietorship concern to file a petition.
2. Existence of a pre-existing dispute.
3. Compliance with Section 9(5) of the Insolvency and Bankruptcy Code, 2016.
4. Appointment of Interim Resolution Professional (IRP).

Issue-wise Detailed Analysis:

1. Locus-standi of a proprietorship concern to file a petition:
The respondent argued that Sidana Enterprises, being a proprietorship concern, had no locus-standi to file the petition. The Tribunal concluded that the application was not illegal but incomplete as it was not in proper order. Sidana was given an opportunity to rectify this defect, which was duly corrected by filing an amended Form 5 showing the operational creditor as "Shri Gunit Pal Singh Sidana, Sole Proprietor, M/s. Sidana Enterprises, a proprietorship concern."

2. Existence of a pre-existing dispute:
The main issue was whether a notice of dispute had been received by Sidana, requiring the rejection of the application under Section 9(5)(2)(d) of the Code. Bhandari Hosiery had sent an undated letter in June 2018 alleging that chemicals supplied by Sidana were defective. Sidana argued that this dispute was raised for the first time two years after the last supply and was unsupported by evidence. The Tribunal found that the undated letter lacked specific details about the defective consignment and no supporting evidence was provided. The Tribunal concluded that the dispute was a "patently feeble legal argument or an assertion of fact unsupported by evidence" and was "spurious, hypothetical or illusory." Therefore, the pre-existence of the dispute was not accepted.

3. Compliance with Section 9(5) of the Insolvency and Bankruptcy Code, 2016:
The Tribunal examined whether the conditions under Section 9(5)(i) of the Code were satisfied:
- The application was complete.
- There was no payment of the unpaid operational debt.
- The invoice or notice for payment had been delivered.
- No valid notice of dispute had been received.
- There was no disciplinary proceeding pending against any proposed resolution professional.

The Tribunal found that all conditions were met and admitted the application, directing the initiation of the Corporate Insolvency Resolution Process (CIRP) against Bhandari Hosiery Exports Limited.

4. Appointment of Interim Resolution Professional (IRP):
Since no IRP was proposed by Sidana, the Tribunal referred to the Board for the recommendation of an insolvency professional. Mr. Davinder Singh Gandhi was selected and appointed as the IRP. The Tribunal directed him to take control and custody of the assets, manage the affairs of the corporate debtor, and perform duties as per the Code. He was also instructed to make a public announcement, constitute a committee of creditors, and send regular progress reports to the Tribunal.

Moratorium Declaration:
The Tribunal declared a moratorium under Section 14 of the Code, prohibiting:
- Institution or continuation of suits or proceedings against the corporate debtor.
- Transferring, encumbering, or disposing of any assets.
- Foreclosure or recovery actions against the corporate debtor's property.
- Recovery of any property in possession of the corporate debtor.

The moratorium would be effective until the completion of the CIRP or until a resolution plan is approved or liquidation is ordered.

Conclusion:
The Tribunal admitted the application for initiating CIRP against Bhandari Hosiery Exports Limited, appointed Mr. Davinder Singh Gandhi as the IRP, and declared a moratorium. The Tribunal directed the IRP to manage the corporate debtor's affairs, make necessary announcements, and report progress regularly. The decision emphasized the importance of detailed evidence in disputes and compliance with procedural requirements under the Insolvency and Bankruptcy Code, 2016.