2022 (7) TMI 1278 - 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 - Upon appreciation of the documents placed on record to substantiate the claims, this Adjudicating Authority is of the view that there is a pre-existing dispute. As per the records shown by the Corporate Debtor, the work of the Operational Creditor has not been satisfactory despite repeated requests for rectification by the Corporate Debtor. Infact, the issue of polishing of the stone floor has remained unresolved. It appears that the Operational Creditor is using this forum as a recovery mechanism for retention money which is not the purpose or intention of the IBC 2016. Additionally, the threshold requirement for debt default given under S. 4 of the Insolvency and Bankruptcy Code 2016 is not satisfied in this case. Application dismissed.

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Alleged default by the Corporate Debtor in clearing the debt.
3. Pre-existing dispute between the parties.
4. Applicability of the enhanced minimum default threshold under Section 4 of the Code as per the notification dated 24.03.2020.
5. Claim of interest on overdue amounts by the Operational Creditor.

Issue-wise Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016:
The Applicant, M/s. K.S. Venkataraman and Co. Pvt. Ltd., sought to initiate CIRP against the Respondent, SAK Buildtech Pvt. Ltd., for an alleged default in clearing a debt of Rs. 28,14,754. The application was filed on 13.04.2021. The Operational Creditor claimed that the Corporate Debtor had not paid the retention money as per the Civil Works Agreement and the External Development Works Agreement.

2. Alleged default by the Corporate Debtor in clearing the debt:
The Operational Creditor detailed various transactions and agreements with the Corporate Debtor, including a Civil Work Agreement and an External Development Works Agreement. The Operational Creditor raised RA Bills, and the Corporate Debtor retained 5% of the bill amounts as retention money, which was to be released after one year from the date of virtual completion. Despite the completion of work and issuance of completion certificates, the retention money was not fully paid.

3. Pre-existing dispute between the parties:
The Corporate Debtor argued that there was a pre-existing dispute regarding the quality of work performed by the Operational Creditor, specifically related to the polishing of the floor stone. The Corporate Debtor highlighted various correspondences and emails where issues with the work were raised, and the Operational Creditor acknowledged the defects but demanded payment before rectifying the issues. The Tribunal found that there was indeed a pre-existing dispute, as the work had not been satisfactorily completed despite repeated requests for rectification.

4. Applicability of the enhanced minimum default threshold under Section 4 of the Code as per the notification dated 24.03.2020:
The Corporate Debtor argued that the application was not maintainable as the alleged debt amount was less than the enhanced threshold of INR 1 crore specified in the notification dated 24.03.2020. The Tribunal referred to the judgment in Jumbo Papers Products Vs. Hanaraj Agrofresh Private Limited, which held that the enhanced threshold limit applies to all applications filed on or after 24.03.2020, regardless of when the debt occurred. Since the application was filed after the notification date, the enhanced threshold applied, and the debt amount did not meet this requirement.

5. Claim of interest on overdue amounts by the Operational Creditor:
The Corporate Debtor contended that the agreements did not entitle the Operational Creditor to claim interest on overdue amounts. The Tribunal noted that even if interest were payable, such a claim would be maintainable in a civil court or arbitration, not before the Tribunal. The Tribunal emphasized that CIRP is not a mechanism for debt recovery but for the reorganization and resolution of a corporate debtor.

Conclusion:
The Tribunal dismissed the application, citing the pre-existing dispute and the failure to meet the enhanced threshold requirement for debt default under Section 4 of the Insolvency and Bankruptcy Code, 2016. The Tribunal reiterated that the purpose of the Code is not to serve as a debt recovery forum.

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