2021 (12) TMI 1056 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - whether the provisions of Section 10A stand attracted to an application under Section 9 which was filed after 5th June 2020 (the date on which the provision came into force) in respect of a default which has occurred after 25 March 2020? - HELD THAT - Under Section 9(1), the Operational Creditor may file an application before the Adjudicating Authority for initiating the Corporate Insolvency Resolution Process ( CIRP ), after the expiry of a period of ten days from the date of delivery of the notice (or invoice demanding payment) under Sub-Section (1) of Section 8, if the operational creditor does not receive payment from the Corporate Debtor or a notice of the dispute under Sub-Section (2) of Section 8 - The proviso to Section 10A stipulates that no application shall ever be filed for the initiation of the CIRP of a corporate debtor for the said default occurring during the said period . The explanation which has been inserted for the removal of doubts clarifies that Section 10A shall not apply to any default which has been committed under Sections 7, 9 and 10 before 25 March 2020. It is clear that the Executive in the Promulgation of the Ordinance to meet an extraordinary situation and to avoid causing further stress to the already beleaguered businesses due to COVID pandemic throughout the world and also in addition affected by the lock down enforced by the State of the Union, all beyond their control have chosen to suspend the filing of any application in relation to defaults arising on or after 25.03.2020 - the Corporate Debtor received the products in various lots on 21.03.2020 and 23.03.2020 and also on 30.05.2020, where the part payments were made on 28.05.2020 and 28.07.2020 into the bank account of the Operational Creditor against the total amount due. Therefore, the date of default cannot be considered as 21.03.2020, as it is only the date of order but from the date 28.07.2020, the Corporate Debtor failed to pay the balance amount. The records produced as evidence to prove the outstanding dues categorically show the default date as 28.07.2020 and not 21.03.2020 - the applicant purposefully sought amendment of the date of default in this application to fall outside the preview of Section 10A of the Code, by hood winking this Tribunal in order to substantiate the efforts of the Operational Creditor and to recover their legitimate dues. It is clearly established that an attempt is being made to deliberately misuse the provisions of Insolvency Bankruptcy Code defeating the very intent for which it was enacted - the application filed by the Operational Creditor stands rejected under Section 60 (5) of Insolvency Bankruptcy Code, 2016 - Application dismissed.

Issues Involved:
1. Existence of Operational Debt
2. Privity of Contract
3. Quality and Quantity of Supplied Goods
4. Impact of COVID-19 and Lockdown
5. Applicability of Section 10A of IBC
6. Date of Default

Detailed Analysis:

1. Existence of Operational Debt:
The Operational Creditor, a registered partnership firm, supplied aqua products to the Corporate Debtor, who acknowledged the receipt of materials but made only partial payments. The total sales amounted to ?1,43,53,247, with a remaining balance of ?93,53,247. Including interest, the operational debt as of 30.11.2020 stood at ?1,05,80,698. The Corporate Debtor's ledger account acknowledged the principal debt of ?93,53,248 as of 27.07.2020.

2. Privity of Contract:
The Corporate Debtor argued that there was no direct privity of contract between them and the Operational Creditor, stating that all transactions were conducted through an agent. The Operational Creditor refuted this, asserting that the Corporate Debtor's defense was a sham to avoid payment.

3. Quality and Quantity of Supplied Goods:
The Corporate Debtor contended that due to the national lockdown, the supplied goods, which were stored in cold storage, were found to be of inferior quality and damaged, leading to their destruction. They claimed that the goods were not exported, and no revenue was earned from them, resulting in a settlement to pay ?35,00,000 for the damaged goods.

4. Impact of COVID-19 and Lockdown:
The Corporate Debtor cited the COVID-19 pandemic as a reason for the damages and default in payment. They highlighted the unprecedented situation and national lockdown, which affected their ability to inspect and process the goods.

5. Applicability of Section 10A of IBC:
The Tribunal examined whether Section 10A, which suspends the initiation of CIRP for defaults arising on or after 25th March 2020, applied to this case. The application was filed on 16.09.2020, and the default date was initially set as 28.07.2020. The Tribunal referred to the Supreme Court's decision in Ramesh Kymal Versus M/s Siemens Gamesa Renewable Power Pvt Ltd, which clarified that Section 10A bars the initiation of CIRP for defaults occurring during the stipulated period.

6. Date of Default:
The Operational Creditor sought to amend the default date to 21.03.2020 to fall outside the purview of Section 10A. However, the Tribunal found that the true default date was 28.07.2020, as evidenced by the last payment made on that date. The Tribunal concluded that the amendment was an attempt to misuse the provisions of the IBC.

Conclusion:
The Tribunal determined that the default date was 28.07.2020, making the application fall within the period covered by Section 10A. Given the severity of consequences following insolvency proceedings and the intent to misuse the IBC provisions, the application by the Operational Creditor was rejected under Section 60(5) of the Insolvency & Bankruptcy Code, 2016.

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