2022 (5) TMI 1203 - 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 - HELD THAT - It is clear from the pleadings that the Operational Creditor has supplied the goods to the Corporate Debtor as evident from invoices annexed, furthermore, admittedly there is no dispute raised by the corporate debtor before the filing of reply to the present petition, which cannot be taken into consideration at this time. Moreover, the production rejection report is also doubtful as evident from the instances brought to our knowledge by the counsel of Operational Creditor as discussed in the preceding paragraph. Also there is an amount outstanding which corporate debtor has defaulted in payment as evident from the ledger account. It is also pertinent to mention that the Notification regarding the enhancement of minimum amount of default to one crore for the purpose of Section 4 was issued by the Ministry of Corporate Affair on 24th March, 2020 and the amount defaulted by the Corporate Debtor and filing of the petition was much before the said date. Since any notification issued by the Government is generally prospective in nature unless specifically expressed, therefore the notification is not applicable to the present case. Hence, this authority is inclined to initiate the CIR Process of Corporate Debtor, therefore, the captioned petition is admitted. Application admitted - moratorium declared.

Summary

Issues:
- Initiation of Corporate Insolvency Resolution Process under Section 9 of the Insolvency & Bankruptcy Code, 2016.
- Dispute regarding outstanding payments and quality of goods supplied by the Operational Creditor.
- Appointment of Interim Resolution Professional and declaration of moratorium.

Analysis:

Issue 1: Initiation of Corporate Insolvency Resolution Process
The Operational Creditor filed a petition seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor due to outstanding payments amounting to Rs. 29,68,740/-. Despite repeated reminders and a statutory demand notice, the Corporate Debtor failed to make full payments. The Tribunal admitted the petition, citing the default in payment before the notification enhancing the minimum default amount to one crore, making the Corporate Debtor liable for CIRP.

Issue 2: Dispute over Quality of Goods
The Corporate Debtor contested the petition, alleging that the goods supplied were of substandard quality, unfit for human consumption, and contained foreign materials. However, the Operational Creditor refuted these claims, stating that the Corporate Debtor never raised any objections previously. The Tribunal found the rejection reports provided by the Corporate Debtor to be doubtful, as discrepancies were highlighted by the Operational Creditor during oral arguments. The Tribunal concluded that the Corporate Debtor's objections were raised belatedly and without prior communication, leading to the admission of the CIRP petition.

Issue 3: Appointment of Interim Resolution Professional and Moratorium
The Tribunal appointed an Insolvency Professional as the Interim Resolution Professional and declared a moratorium on the Corporate Debtor's assets. The moratorium prohibited legal actions against the Corporate Debtor, asset transfers, and enforced security interests. Essential services to the Corporate Debtor were to continue uninterrupted during this period. The Operational Creditor was directed to pay an advance to the IRP for performing duties, and all relevant parties were instructed to cooperate with the IRP. The Tribunal emphasized compliance with relevant provisions of the Insolvency & Bankruptcy Code, 2016.

In conclusion, the Tribunal admitted the petition for CIRP initiation, appointed an IRP, declared a moratorium, and directed parties to comply with the provisions of the Code for the resolution process.