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2020 (12) TMI 1175 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - HELD THAT - 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 I B Code, 2016 is not intended to be substitute to a recovery forum. The Code cannot be used prematurely or for extraneous considerations or reasons as a substitute for debt enforcement procedures. It is also not the purpose of the Code to put viable and profit making entities into insolvency for the recovery of debt. On perusal of the Invoices annexed to the Petition, it is seen that the invoices annexed are from 27.10.2014 to 10.08.2018. However, the amounts that fall within the period of limitation are approximately a sum of ₹ 4,89,849/- as the invoices from the period 06.02.2017 have to be considered for the purposes of calculating the amounts due. Further, the Debit Note dated 21.04.2017 annexed to the Statement of Objections for ₹ 29,02,650/- with a statement that the said debit note is issued on account of Towards Debit for Rejection of cotton Trousers processed during the year 2015 and 2016 due to Silicon Stains - It is also seen that the two parties were continuously transacting between themselves till August 2018. Supplies were being made and part payments were being received, thereon from time to time. This means that the Petition filed by the Operational Creditor is only for the recovery of dues on the outstanding bills, that too on account of the dispute on the quality of goods supplied. This forum cannot be used for recovery On perusal of the audited balance sheet of the Corporate Debtor Company, it is clear that it is an ongoing concern with substantial turnover and therefore pushing a company with such revenue into CIRP will be an act contrary to the objects of the code. The Code aims at resolving the insolvency of a corporate debtor through the CIRP, and cannot be used done if the Corporate Debtor/ Respondent Company in question is not insolvent. This also makes it clear that when the Petitioner has filed this petition not to aid in resolving its debt and insolvency but with an intention to recover its dues. We are very clear that the intent and purpose this Tribunal is not recovery, and when no case of insolvency is made out against the Respondent Corporate Debtor, the provisions of section 9 of the Code cannot be attracted. Hence, in the presence of a pre-existing dispute in terms of the Code, 2016 before the issuance of Demand Notice dated 27.12.2019, no case is made out for admitting the Petition against a solvent and on-going concern. This is merely a Petition for recovery, and falls outside the ambit and objectives of the Code, 2016. Further, the Petitioner has claimed amounts due from 2014 which are clearly barred by limitation. However, this order under the IBC shall not come in the way of the Petitioner to seek recovery of dues, if any, in any other forum - Petition dismissed.
Issues Involved:
1. Default in payment by the Corporate Debtor. 2. Dispute regarding the quality of goods supplied. 3. Limitation period for the debt. 4. Threshold limit for initiating CIRP. 5. Objective of the IBC and misuse of the Code for recovery. Detailed Analysis: 1. Default in Payment by the Corporate Debtor: The Operational Creditor, Sudha Industrial Chemicals, filed a petition under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016, seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, Orijean Private Limited, for an outstanding amount of ?39,09,014, which includes a principal amount of ?23,06,422 and interest of ?16,02,591.91. The Corporate Debtor had halted payments since August 2018 despite regular supplies. 2. Dispute Regarding the Quality of Goods Supplied: The Corporate Debtor contended that the chemicals supplied by the Operational Creditor were substandard, leading to damage to their garments. They claimed that this issue was communicated to the Operational Creditor, who failed to replace the defective chemicals or compensate for the losses. The Corporate Debtor provided a Debit Note dated 21.04.2017 for ?29,02,650, indicating the dispute over the quality of goods supplied. 3. Limitation Period for the Debt: The Corporate Debtor argued that a substantial portion of the claim was barred by limitation. The Tribunal noted that the invoices annexed to the petition were from 27.10.2014 to 10.08.2018. Only the invoices from 06.02.2017 onwards, amounting to approximately ?4,89,849, fell within the limitation period. 4. Threshold Limit for Initiating CIRP: The Corporate Debtor highlighted that the Central Government's notification dated 24.03.2020 increased the minimum threshold for initiating CIRP to ?1,00,00,000. Since the Operational Creditor's claim was below this threshold, the petition could not be maintained. However, the Tribunal noted that the application was filed on 06.02.2020, before the notification, and thus, this threshold was not applicable retrospectively. 5. Objective of the IBC and Misuse of the Code for Recovery: The Tribunal emphasized that the IBC is not intended to be a substitute for a recovery forum. It is meant to resolve insolvency and not for debt enforcement procedures. The Tribunal cited the Supreme Court's judgments in Mobilox Innovations Private Limited v. Kirusa Software Private Limited and Transmission Corporation of A.P. Ltd. v. Equipment Conductors and Cables Ltd., which state that the existence of an undisputed debt is a sine qua non for initiating CIRP. The Tribunal observed that the petition was filed with the intention to recover dues rather than to revive the Corporate Debtor. Conclusion: The Tribunal concluded that there was a pre-existing dispute regarding the quality of goods supplied, which was communicated before the issuance of the demand notice dated 27.12.2019. The petition was found to be an attempt to recover dues rather than to resolve insolvency. Additionally, the claim included amounts barred by limitation. The Tribunal dismissed the petition, stating that the provisions of Section 9 of the IBC could not be invoked in this case. However, it clarified that this order would not prevent the Operational Creditor from seeking recovery through other forums.
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