2021 (1) TMI 442 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Petitioner is stated to have continued the services inspite of failure to pay outstanding amount - Agreement has clearly provided terms of payment and service to be utilised and also alternative mechanism for any dispute arise out of implementation of terms and conditions of it - existence of debt and dispute or not - HELD THAT - The Agreement has clearly provided terms of payment and service to be utilised and also alternative mechanism for any dispute arise out of implementation of terms and conditions of it. If the dues are not paid, the Petitioner has the right to suspend services until all undisputed invoices are paid. However, for the reasons best known to the Petitioner is stated to have continued the services inspite of failure to pay outstanding amount. The Petitioner failed to take any of the actions as mentioned in the Licence Agreement. The claim made in the instant Company Petition is for the period from 20.08.2016 to 19.02.2018, however the Petitioner has not initiated any legal course of action to recover the alleged outstanding amount till impugned the legal notice dated 06.06.2019 issued under the provisions of the Code. Except showing some uncorroborated e-mails made with the Respondent, the Petitioner failed to substantiate its claim even prima facie. In the Licence Agreement, there is a clause by name Force Majeure, which exempts the parties for delays, failure or omissions due to any cause beyond its reasonable control, due to labour disturbances, riots, fires, earthquake, floods, EPIDEMIC etc. For the cause of action arise in the year 2016, the Petitioner got issued demand notice only on 6.6.2019, however, the instant Petition was filed before the Tribunal only on 29th January 2020. Therefore, invoking the provisions of Code for the nature of causes of action arise in the instant is nothing but abuse the provisions of the Code. It is also relevant to point out here that Section 4 of Code underwent amendment, wherein minimum amount of default is enhanced to Rupees One Crore from existing amount of Rupees One Lakhs (Amended as per the Gazette of India notification issued by the Ministry of Corporate Affairs dated 24.03.2020). Every Act or it amendment, will normally have prospective effect unless it is made retrospective. However, Courts/Tribunal, will have to examine the issue with reference to cause of act in arise in particular cases, and to decide the case by applying Law as available at the time of admission of a particular case - the Petitioner failed to make out even prima facie case with regard to claim made in the instant Company Petition, which is misconceived. Therefore, instant Company Petition is liable to be rejected. Petition dismissed.

Summary

Issues:
Initiation of Corporate Insolvency Resolution Process (CIRP) based on default amounting to Rs. 11,80,900/-, including interest of Rs. 3,28,296/-.

Analysis:
1. The appellant, M/s. P.E. Analytics Private Limited, filed C.P (IB) No. 164/BB/2020 seeking to initiate CIRP against M/s. Skylark Mansions Private Limited for defaulting on a total amount of Rs. 11,80,900/-, including interest. The appellant claimed non-payment of invoices for services provided under a License Agreement.

2. The License Agreement detailed the terms of service provision, payment terms, and dispute resolution mechanisms. The appellant sent multiple emails requesting payment, followed by a Demand Notice dated 06.06.2019 demanding payment within 10 days. The respondent did not respond adequately, leading to the filing of the Company Petition.

3. The Tribunal analyzed the License Agreement clauses, including provisions on payment terms, service suspension for non-payment, and dispute resolution mechanisms. Despite the default, the appellant continued services without taking necessary actions as per the Agreement, raising questions about diligence.

4. The Tribunal noted the delay in legal action initiation by the appellant, issuing a demand notice in 2019 for defaults dating back to 2016-2018. The Tribunal highlighted the Force Majeure clause in the Agreement, exempting parties from delays due to uncontrollable events like epidemics, questioning the timing of invoking the Code provisions.

5. The Tribunal referenced the amended Section 4 of the Code, increasing the minimum default amount to Rs. 1 crore, and emphasized the need to consider economic distress due to the pandemic before initiating CIRP. The Tribunal concluded that the appellant failed to establish a prima facie case for the claim, leading to the rejection of the Company Petition.

6. The Tribunal rejected C.P (IB) No. 164/BB/2020, stating that the appellant's claim lacked merit and was misconceived. The decision highlighted the importance of establishing a clear default without dispute and considering prevailing economic conditions before initiating insolvency proceedings.