2023 (1) TMI 349 - AT - Insolvency and Bankruptcy

Maintainability of application - seeking to bring the Corporate Debtor under the rigours of Corporate Insolvency Resolution Proceedings - Operational creditors - HELD THAT - It is an undisputed fact that Shri Moti Kumar resigned from the Corporate Debtor firm finally on 08.10.2016 at which point of time he worked both with the Corporate Debtor and the Operational Creditor. There is also no doubt in our mind that at the time of joining the partnership firm, he was barred from taking any outside duties in terms of the appointment letter issued by the Corporate Debtor. Given the above, we are satisfied that the doubts expressed by the Adjudicating Authority about the questionable role of Shri Moti Kumar is not unfounded - It has also been observed by the Adjudicating Authority that the Operational Creditor actively concealed this material fact in their Section 9 application that their partner Shri Moti Kumar was working as an accountant in the Respondent Company during 2014 to 2016 when the transactions under reference have occurred between the parties. The Adjudicating Authority has therefore come to the conclusion that this dual employment of Shri Moti Kumar not only casts serious doubt on the transactions carried out between the Operational Creditor and the Corporate Debtor during the period of February 2014 to May 2016 but also points towards possible manipulation. The Adjudicating Authority having noted the material concealment of the fact by the Operational Creditor regarding the fact that Shri Moti Kumar was working concurrently in both the entities i.e. the partnership firm of the Operational Creditor and the Corporate Debtor at the time of transactions and after having considered the rival submissions and after seeing the documents on record have held that it raises serious doubts as to whether the Respondent really committed any default or there is an element of fraud in the transactions. It has therefore held that the dispute needs more investigation and beyond the scope of the Adjudicating Authority in terms of the judgement of the Hon ble Supreme Court in MOBILOX INNOVATIONS PRIVATE LIMITED VERSUS KIRUSA SOFTWARE PRIVATE LIMITED 2017 (9) TMI 1270 - SUPREME COURT . It is well settled that in section 9 proceeding, the Adjudicating Authority is not to enter into final adjudication with regard to existence of dispute between the parties regarding the operational debt. What has to be looked into is whether the defence raises a dispute which needs further adjudication by a competent court. The Adjudicating Authority has rightly dismissed the application of the Appellant filed under Section 9 of IBC - Appeal dismissed.

Summary

Issues:
- Dismissal of Section 9 petition seeking Corporate Debtor's insolvency
- Allegations of irregular payments by Corporate Debtor
- Dispute regarding liability of Corporate Debtor
- Role of Shri Moti Kumar in transactions
- Allegations of fraud and manipulation in transactions
- Concealment of material facts by Operational Creditor
- Lack of authenticity in invoices
- Need for further investigation due to possible fraud element
- Application of Mobilox judgement in dispute resolution

Analysis:

The judgment pertains to the dismissal of a Section 9 petition under the Insolvency and Bankruptcy Code 2016 (IBC) by the Appellant against the Corporate Debtor. The Appellant, an Operational Creditor, claimed that the Corporate Debtor failed to pay outstanding bills amounting to Rs. 72,31,268.36 along with interest. The dispute arose when the Corporate Debtor refuted the claims, alleging irregularities in the transactions due to the involvement of Shri Moti Kumar, who had a dual role as an accountant in the Corporate Debtor and a partner in the Operational Creditor's firm.

The Adjudicating Authority considered the submissions from both parties. It was revealed that Shri Moti Kumar's actions raised doubts about the authenticity of transactions between the parties. The Adjudicating Authority noted that the Operational Creditor concealed the fact of Shri Moti Kumar's dual employment, casting suspicion on the transactions' legitimacy. The Adjudicating Authority found discrepancies in the invoices, indicating possible forgery and manipulation, further supporting the Corporate Debtor's defense of a dispute regarding the liability.

The judgment emphasized the need for a thorough investigation due to the potential element of fraud in the transactions. Citing the Mobilox judgment, the Adjudicating Authority concluded that the dispute required detailed examination beyond its summary jurisdiction. It was clarified that the Adjudicating Authority's role in Section 9 proceedings is not to make a final determination but to ascertain if a dispute necessitates adjudication by a competent court.

Ultimately, the Appellate Tribunal upheld the Adjudicating Authority's decision to dismiss the Section 9 petition, stating that the defense raised by the Corporate Debtor was not illusory and warranted further adjudication. The judgment highlighted the importance of addressing genuine disputes through appropriate legal channels, allowing the Appellant to seek remedies in other forums if necessary. The Appeal was dismissed with no order as to costs, affirming the Adjudicating Authority's ruling.