2020 (11) TMI 849 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - default made by employees of Operational Creditor - existence of debt and dispute or not - HELD THAT - The intent of Legislature is very vital for interpreting any law, which can be well deduced from the words of Section 8(2)(a) of I B Code existence of a dispute if any . It can be easily inferred that dispute shall not be limited to instances specified in the definition as provided under Section 5(6), as it has far arms, apart from pending Suit or Arbitration as provided Under Section 5(6) of IBC. The IBC is not a substitute for a recovery forum - Section 9 of the IBC makes it very clear for the Adjudicating Authority to admit the application if no notice of dispute is received by the Operational Creditor and there is no record of the dispute in the information utility. Whereas, on the other hand, Section 9 also states that the Adjudicating Authority to reject the application so filed if the Operational Creditor has received a notice of a dispute from the Corporate Debtor . The Operational Creditor cannot take recourse that the payment if any made to the employees were in their personal capacity and not on account of Operational Creditor. As it is a well settled principle under Law of Agency that where an employee does some wrongful act, within the course of his employment, then for that act the employer s liability shall arise. The employee would be liable for the wrongful act he has done, whereas the employer would be liable vicariously for the act due to the principal-agent relationship between the two. In that situation, the aggrieved person is at the choice whether to sue principal or agent or both. Therefore, fraud committed by any of the employees of the Operational Creditor cannot be said to be done in their personal capacity. The Operational Creditor has admitted before the Adjudicating Authority that the Corporate Debtor have made the payment of ₹ 14,17,000/-, saying that those payments were towards the out of pocket expenses incurred during the process of custom clearing of Corporate Debtor s goods - since there was a dispute existing prior to the issuance of Section 8 notice, the insolvency provisions cannot be invoked - Application admitted.

Summary

Issues Involved:
1. Existence of a dispute prior to the issuance of the demand notice under Section 8 of the I&B Code.
2. Payment of ?14,17,000/- to the employees of the Operational Creditor and its treatment.
3. Dishonour of cheques issued by the Corporate Debtor.
4. Limitation period for the claim of the Operational Creditor.
5. Onus of proof regarding payments and out-of-pocket expenses.

Detailed Analysis:

1. Existence of a Dispute Prior to the Issuance of the Demand Notice:
The Appellant contended that there was a pre-existing dispute between the parties before the demand notice dated 22nd April 2019 was issued by the Operational Creditor. The Corporate Debtor had communicated multiple times, including emails and legal notices, indicating disputes over payments and requesting ledger books and bank statements. The Adjudicating Authority, however, concluded that the disputes raised were not real but spurious and did not fall under the ambit of Section 5(6) of the I&B Code. The Appellate Tribunal disagreed, highlighting that the existence of a dispute prior to the issuance of the demand notice was evident from the sequence of communications and legal notices exchanged between the parties.

2. Payment of ?14,17,000/- to the Employees of the Operational Creditor:
The Corporate Debtor claimed to have paid ?14,17,000/- to the employees of the Operational Creditor, which was not accounted for by the Operational Creditor. The Adjudicating Authority noted that the Operational Creditor admitted receiving this amount but claimed it was for out-of-pocket expenses. The Appellate Tribunal emphasized that the onus to prove whether the payment was for out-of-pocket expenses or main services lay on the Operational Creditor, which failed to provide such proof. The Tribunal concluded that the dispute over this payment existed and should be resolved by an appropriate forum.

3. Dishonour of Cheques Issued by the Corporate Debtor:
The Corporate Debtor issued cheques to the Operational Creditor, which were dishonoured due to insufficient funds and payment stopped by the drawer. The Appellant argued that these cheques were issued as security and not meant to be presented for payment. The Operational Creditor, however, presented the cheques, leading to their dishonour. The Tribunal noted that the dishonour of cheques and the subsequent legal notices indicated the existence of a dispute over payments.

4. Limitation Period for the Claim of the Operational Creditor:
The Appellant contended that a portion of the claim amounting to ?8,68,478/- was barred by limitation as the defaults occurred more than three years before the institution of the Company Petition on 24th June 2019. The Adjudicating Authority did not address this contention adequately. The Tribunal emphasized the need to consider the limitation period while adjudicating such claims.

5. Onus of Proof Regarding Payments and Out-of-Pocket Expenses:
The Appellant argued that the Operational Creditor failed to provide ledger books and bank statements to reconcile accounts, thereby not proving that the payment of ?14,17,000/- was for out-of-pocket expenses. The Tribunal agreed that the onus of proving the nature of the payment lay on the Operational Creditor, which did not meet this burden of proof.

Conclusion:
The Appellate Tribunal set aside the impugned order dated 13th February 2020, initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Tribunal concluded that a pre-existing dispute existed, and the insolvency provisions could not be invoked. The matter of whether the payments were for out-of-pocket expenses or main services, and the dishonoured cheques, were deemed disputed questions of law and fact to be decided by an appropriate forum. The Tribunal also directed the Adjudicating Authority to compensate the Insolvency Resolution Professional for his remuneration and expenses incurred.