2020 (12) TMI 239 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor has committed default for a total outstanding amount - Existence of debt and dispute or not - HELD THAT - There is a delay in making payment to the Petitioner. However, there are no document that indicates the existence of any agreement between the parties with regard to the terms of the payment. Similarly, but for the Invoices, there is nothing to show that interest was agreed upon to be charged at 24%, in case of delay in payment, as being charged by the Petitioner. In the absence of any Agreement and expressly laid out terms, there is no right to payment of interest at a certain rate, created in the hands of the Petitioner as per terms of its choice, and there cannot be any debt and default in respect of such interest, within the meaning of the Code, even if some interest is otherwise payable. Also, in the absence of any Agreement, there cannot be a default for delayed or non-payment of the amounts raised through invoices. One sided Invoices or E-mails cannot be a substitute for a mutual agreement. In any case there is no clear and undisputed debt, which is a sine qua non for proceeding under Section 9 of the Code as the Respondent has attributed the late payments to delayed delivery of supplies and also the exorbitant interest charged. In the present case the Petitioner has attempted to use the Code only to recover its amounts from an otherwise solvent company with a healthy turnover, having a large number of employees, and having on-going projects in hand. No case has been made out that the Corporate Debtor has become insolvent or has lost its substratum, such that it is unable to pay its debts or run its business. This is clearly against the spirit of the Code. Petition dismissed.

Summary

Issues:
- Initiation of Corporate Insolvency Resolution Process under Section 9 of IBC, 2016 based on default in payment.
- Existence of agreement between parties regarding payment terms and interest.
- Justifiability of invoking IBC for recovery of outstanding amounts from a solvent company.
- Consideration of economic circumstances and willingness of the debtor to repay the debt.

Analysis:
1. Initiation of Corporate Insolvency Resolution Process: The case involved a petition under Section 9 of the IBC, 2016 seeking to initiate the Corporate Insolvency Resolution Process against the respondent for defaulting on payments totaling &8377; 16,78,006.53. The petitioner provided logistics services to the respondent, and despite repeated demands and a formal notice, the respondent failed to make the payments within the stipulated time frame.

2. Existence of Agreement on Payment Terms and Interest: The tribunal noted the absence of a clear agreement between the parties regarding payment terms and interest rates. While invoices were raised and emails exchanged outlining payment schedules, there was no explicit agreement on interest charges for delayed payments. The tribunal emphasized the necessity of a mutual agreement to establish a debt and default under the Code, which cannot be solely inferred from unilateral invoices or emails.

3. Justifiability of Invoking IBC for Recovery: The judgment highlighted that the IBC is not meant for mere recovery of outstanding amounts but should be invoked for valid reasons as per the provisions of the Code. Citing relevant Supreme Court precedents, the tribunal emphasized that the IBC should not be misused to jeopardize the financial stability of a solvent company. In this case, the petitioner's attempt to trigger the CIRP against a solvent company with a healthy turnover was deemed unjustified.

4. Consideration of Economic Circumstances and Debtor's Willingness to Repay: The tribunal took into account the economic context, especially the impact of the global pandemic, and the respondent's demonstrated willingness to repay the debt as per a proposed payment schedule. Despite the petitioner's insistence on charging exorbitant interest rates, the respondent showed readiness to settle the outstanding amount with reasonable interest. The tribunal emphasized the importance of parties resolving the matter amicably, especially considering the economic challenges.

In conclusion, the tribunal dismissed the Company Petition as it found no merit in initiating the Corporate Insolvency Resolution Process against the respondent, a solvent company with the capacity to repay the debt. The judgment underscored the importance of upholding the spirit of the IBC, avoiding misuse for recovery purposes, and encouraging parties to settle disputes reasonably, particularly in challenging economic circumstances.