2021 (8) TMI 1133 - AT - Insolvency and Bankruptcy

Maintainability of application - documents of doubtful origin annexed with the application - time limitation - whether the Section 9 application is legally maintainable in view of the claim that documents are of doubtful origin annexed with the application, and whether the Section 9 application is within limitation? - HELD THAT - The IBC provides for action u/s 65 of IBC against the person who initiates proceeding under the IBC fraudulently or with malicious intent, for the purpose other than the resolution of Insolvency or liquidation under the Code. To levy a penalty under Section 65 of the Code, the decision is required to be arrived at by the Adjudicating Authority. In view of the provision in Section 65 (1), we feel that Adjudicating Authority is the correct forum to agitate this issue and we desist from commenting any further on this matter. On a close perusal of documents submitted by the operational creditor and other parties lead us to the conclusion that the application u/s 9 was not submitted within limitation and it contained documents of doubtful origin which do not inspire confidence, and which formed the basis of admission order. The allegations of collusion between the Operational Creditor and the corporate debtor raise reasonable doubt. Documents filed to hold debt was due, or payable do not raise confidence. Initiation of CIRP of a company which is a going concern, on the basis of a short defence note without a proper reply/defence called from the corporate debtor, and based on such documents attached with the admission application is certainly not proper and defeats the purpose and intent of the IBC in letter and spirit. The Interim Resolution Professional/Resolution Professional shall hand back charge of Corporate Debtor. Adjudicating Authority will pass orders regarding fees to be paid to Interim Resolution Professional/ Resolution Professional. The Corporate Debtor is released from the rigours of moratorium and CIRP - appeal allowed.

Issues Involved:
1. Legality and maintainability of the Section 9 application under IBC.
2. Limitation period for the debt in default.
3. Authenticity and reliability of documents submitted with the Section 9 application.
4. Alleged collusion between the corporate debtor and other parties.
5. Adherence to principles of natural justice by the Adjudicating Authority.
6. Request for initiation of Section 65 proceedings under IBC.

Issue-wise Detailed Analysis:

1. Legality and Maintainability of the Section 9 Application:
The judgment addresses the legality and maintainability of the Section 9 application filed by the operational creditor UICL. The appellant Rishima alleged that the application was filed with malafide intentions to frustrate Rishima’s rights arising from an arbitration award. The operational creditor UICL denied these allegations, claiming the application was based on unpaid invoices from 2014 to 2016.

2. Limitation Period for the Debt in Default:
The judgment scrutinized whether the application under Section 9 was filed within the statutory limitation period. The operational creditor claimed the last payment was made on June 7, 2017, thereby extending the limitation period. However, the tribunal found the document showing the last payment to be of doubtful origin and unreliable. Consequently, the tribunal concluded that the application, filed on July 21, 2020, was barred by limitation, as the last invoice date was January 23, 2016.

3. Authenticity and Reliability of Documents:
The tribunal examined the authenticity of documents submitted with the Section 9 application, including purchase orders, invoices, and payment details. It found several discrepancies, such as the lack of transmission or receipt reports, and documents not being notarized or apostilled. The tribunal noted that the bank statements provided were in a foreign language without English translations, making them unreliable.

4. Alleged Collusion Between the Corporate Debtor and Other Parties:
Rishima alleged collusion between the corporate debtor Sarga Hotel and SIDCL to subvert the execution of the arbitration award. The tribunal acknowledged the existence of disputes between Rishima, SIDCL, and the corporate debtor, which lent credence to the allegation of collusion. It highlighted the unusual haste with which the Section 9 application was processed and admitted, suggesting possible collusion.

5. Adherence to Principles of Natural Justice:
The tribunal found that the Adjudicating Authority (NCLT) did not adhere to the principles of natural justice. The corporate debtor was not given a proper opportunity to file a complete reply or defend itself adequately. The tribunal criticized the NCLT for proceeding with the admission of the application based on a short defence note and without a full hearing.

6. Request for Initiation of Section 65 Proceedings:
Rishima requested the initiation of Section 65 proceedings against the corporate debtor and SIDCL for fraudulent or malicious initiation of insolvency proceedings. The tribunal referred to the Supreme Court’s judgment in Swiss Ribbons (P) Ltd. v. Union of India, which mandates that such matters be decided by the Adjudicating Authority. The tribunal refrained from commenting further on this issue, directing it to be raised before the Adjudicating Authority.

Conclusion:
The tribunal concluded that the Section 9 application was not submitted within the limitation period and contained unreliable documents. It found reasonable doubt of collusion between the operational creditor and the corporate debtor. The tribunal set aside the Impugned Order dated August 12, 2020, quashed all steps taken pursuant to it, and released the corporate debtor from the moratorium and CIRP. The tribunal directed the Adjudicating Authority to pass orders regarding fees to be paid to the Interim Resolution Professional/Resolution Professional. There was no order as to costs.

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