2022 (11) TMI 158 - AT - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - whether the Corporate Debtor- Proprietary and Proprietorship can not be deemed to be separate entity and the Corporate Debtor being the Proprietary will be liable to clear the dues of the Proprietorship concern? - existence of debt and dispute or not - time limitation - HELD THAT - From the perusal of the facts and materials on record, it does appear that the family was carrying a business and business dispute has arisen between the parties. The proprietorship Company i.e. The Mining and Engineering Corporation had carried out various business. The Amounts were pooled by the Family Members including Financial Creditor. This Court had by its Order dated 22nd July, 2022 on the offer made by the Appellant to deposit the entire amount principal and interest as claimed in the Application was permitted to deposit the amount drawn in the Bank Draft in favour of Pay and Accounts Officer Ministry of Corporate Affairs which order has been complied with and when the Case is taken today, the offer made by the Appellant to pay the entire interest up to date by a cheque has also shown the Court. The offer made by the Appellant to pay entire demanded amount with interest has been refused by the Financial Creditor which clearly indicates that Financial Creditor is not interested in the debt or the Insolvency Resolution of the Corporate Debtor and wants the Corporate Insolvency Resolution Process (CIRP) to be continued. This is a fit case where CIRP should not be allowed to continue when Financial Creditor proceeded for CIRP not for purposes of Resolution of Insolvency of the Corporate Debtor but for other purposes with some other agenda. The Court should not permit such CIRP to go on, which has been initiated to settle family business dispute. Appeal allowed.

Summary

Issues:
1. Maintainability of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Rejection of the argument regarding limitation.
3. Intervention application by family members seeking to be part of the Committee of Creditors.

Issue 1: Maintainability of the Application under Section 7:
The Adjudicating Authority admitted the application filed by the Financial Creditor against the Corporate Debtor for debt totaling Rs. 15,89,632, including interest. The Corporate Debtor objected, stating the amount was disbursed to a proprietary concern, not directly to them. The Authority held that the Corporate Debtor, being the proprietor, is liable for the dues of the proprietary concern. The Authority also rejected the limitation argument, stating there was a default, thus admitting the application. The Appellate Tribunal heard submissions challenging the admission under Section 9 of the IBC and ordered the Appellant to deposit the claimed amount. The Financial Creditor refused the amount offered by the Appellant, indicating disinterest in the debt resolution. The Tribunal, considering the family business dispute and lack of intent for insolvency resolution, set aside the Authority's order, emphasizing that CIRP should not continue for purposes other than insolvency resolution.

Issue 2: Rejection of the Argument Regarding Limitation:
The Adjudicating Authority rejected the argument on limitation, holding that a default occurred, justifying the admission of the application under Section 7. The Appellate Tribunal ordered the Appellant to deposit the claimed amount, which was done. However, the Financial Creditor refused the payment, indicating a lack of interest in the insolvency resolution process. The Tribunal, considering the family business dispute and the Financial Creditor's disinterest, set aside the Authority's order, emphasizing that CIRP should not continue for purposes other than insolvency resolution.

Issue 3: Intervention Application by Family Members:
Two family members sought to intervene in the matter, claiming entitlement to be part of the Committee of Creditors due to their claims against the Corporate Debtor. The Tribunal heard submissions from all parties and perused the record. The family was involved in a business dispute, with funds pooled by family members, including the Financial Creditor. The Tribunal, after considering the circumstances and the Financial Creditor's disinterest in the debt resolution, set aside the Authority's order, allowing parties to seek appropriate remedies in accordance with the law.

This detailed analysis covers the maintainability of the application under Section 7, rejection of the limitation argument, and the intervention application by family members, providing a comprehensive overview of the judgment delivered by the Appellate Tribunal.