2021 (2) TMI 951 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational creditor - availability of alternative remedy - existence of debt and dispute or not - HELD THAT - The Adjudicating Authority should have, in absence of any dispute contemplated under Section 8(2) having been raised by the Respondent Corporate Debtor as a pre-existing dispute or that the claim of Appellant Operational Creditor had been satisfied, proceeded to admit the Application, as no dispute had been raised before it, justifying its disinclination to admit the Application. Instead, the Adjudicating Authority proceeded to make out a case for the Respondent-Corporate Debtor on the premise that the Appellant-Operational Creditor has not invoked other remedies available under law. We cannot understand as to how the availability of alternate remedy would render the debt and default disputed. In absence of pre-existing dispute having been raised by the Corporate Debtor or it being demonstrated that a suit or arbitration was pending in respect of the operational debt, in respect whereof Corporate Debtor was alleged to have committed default, the Adjudicating Authority would not be justified in drawing a conclusion in respect of there being dispute as regards debt and default merely on the strength of an Agreement relied upon by the Appellant Operational Creditor, notwithstanding the fact that such Agreement provided for reference of a dispute arising between the parties in relation to a claim through arbitration. Even otherwise, Section 238 of the I B Code, which has an overriding effect over the existing laws or any other law or contract, would not admit of the alternative remedy being a disabling provision for Operational Creditor to seek resolution of a dispute in regard to operational debt claimed against the Corporate Debtor by triggering the Corporate Insolvency Resolution Process. The Adjudicating Authority was concerned with the insolvency resolution qua the operational debt, which the Corporate Debtor owed to the Operational Creditor. It was immaterial whether it was solvent or insolvent qua other creditors. The I B Code would not permit the Adjudicating Authority to make a roving enquiry into the aspect of solvency or insolvency of the Corporate Debtor except to the extent of the Financial Creditors or the Operational Creditors, who sought triggering of Corporate Insolvency Resolution Process - The Adjudicating Authority clearly landed in error by observing that the course adopted by it was warranted on the principle of ease of doing business, ignoring the fact that such course was not available to it, ease of doing business only being an objective of the legislation viz. I B Code along with other objectives specified in the preamble, which are sought to be achieved through CIRP process. The Adjudicating Authority is directed to pass an order of admission in respect of the Application filed by the Appellant-Operational Creditor under Section 9 of the I B Code within two weeks of communication of this order - appeal allowed - decided in favor of appellant.

Summary

Issues:
Admission of Application under Section 9 of the Insolvency and Bankruptcy Code, 2016.

Analysis:
The judgment pertains to an Appeal regarding an Application filed by the Appellant - Operational Creditor under Section 9 of the Insolvency and Bankruptcy Code, 2016. The Adjudicating Authority had neither admitted nor rejected the Application but directed the Corporate Debtor to resolve the outstanding debt before invoking arbitration. This approach was found to be non-compliant with the provisions of Section 9(5) of the I&B Code, which clearly outlines the criteria for admitting or rejecting such applications. The law provides only two options for the Adjudicating Authority - either to admit the Application if the conditions are met or to reject it if there are deficiencies. No third course of action is permissible.

The Adjudicating Authority's decision was challenged as it failed to admit the Application despite no dispute raised by the Corporate Debtor regarding the debt or default. The Authority's consideration of the Corporate Debtor's solvency status was deemed irrelevant since the focus should have been on the operational debt owed to the Operational Creditor. The Adjudicating Authority's emphasis on ease of doing business was criticized as it deviated from the objectives of the I&B Code and the Corporate Insolvency Resolution Process. The judgment highlighted that the availability of alternative remedies should not hinder an Operational Creditor from seeking resolution through the insolvency process as per Section 238 of the I&B Code.

The Appellate Tribunal found errors in the Adjudicating Authority's reasoning and set aside the impugned order. The Authority was directed to admit the Application within two weeks and provide an opportunity for the Corporate Debtor to settle the claim. The judgment emphasized adherence to the statutory provisions of the I&B Code and the proper application of the law in insolvency matters.