2018 (6) TMI 845 - Tri - Insolvency and Bankruptcy

Initiating Corporate Insolvency Resolution Process - existence of operational debt - Held that - Here in this case the applicant claim refund of an advance with interest at 24% p.a. Admittedly there is no purchase agreement enabling the applicant to claim refund of advance in the case of failure of supply of materials or in case of shortfall of materials received by the applicant on account of the purchase orders issued by the applicant. The claim of the applicant does not fall with in the definition of operational debt and hence the applicant is not an operational creditor as alleged. Much argued on the side of the respondent that the applicant who signed the application had no authority on the date of filing the application and the authorisation produced along with rejoinder is a deliberate attempt to mislead the facts regarding resolution not taken on the date as shown in the resolution annexed with the original application. Being found that this application is not maintainable as the applicant is not an operational creditor and this application is liable to be dismissed

Summary

Issues Involved:
1. Short supply of goods by the corporate debtor.
2. Non-refund of advance payment by the corporate debtor.
3. Existence of pre-existing disputes.
4. Validity of the operational creditor's claim under the Insolvency and Bankruptcy Code, 2016.
5. Authorization and procedural compliance of the application.

Issue-Wise Detailed Analysis:

1. Short Supply of Goods by the Corporate Debtor:
The applicant, engaged in manufacturing and supplying pre-stressed concrete sleepers, issued purchase orders to the corporate debtor for HTs wire. The corporate debtor made short supplies despite receiving advance payment. The operational creditor contended that the corporate debtor supplied goods worth ?4,02,33,473/- against an advance of ?4,14,42,916/-, leaving a balance of ?12,09,443/- unpaid.

2. Non-Refund of Advance Payment by the Corporate Debtor:
Despite repeated requests and reminders, the corporate debtor neither supplied the remaining materials nor refunded the advance amount. The operational creditor issued a legal notice on 22nd May 2017, but the corporate debtor failed to pay the dues, leading to the initiation of proceedings under the Insolvency and Bankruptcy Code, 2016.

3. Existence of Pre-Existing Disputes:
The corporate debtor argued that there was a pre-existing dispute regarding the amount claimed, citing financial burdens due to taxes and penalties for non-issuance and late submission of Form C. However, the tribunal found no evidence of such disputes being raised before the demand notice was received. The tribunal referred to the Mobilox Innovations (P.) Ltd. v. Kirusa Software (P.) Ltd. case, concluding that the dispute was not bona fide and was raised post-receipt of the demand notice to avoid resolution proceedings.

4. Validity of the Operational Creditor's Claim under the Insolvency and Bankruptcy Code, 2016:
The tribunal examined whether the applicant qualifies as an operational creditor and if the payment owed is an operational debt. Operational debt is defined under Section 5(21) of the I&B Code, 2016, as a claim in respect of goods or services, employment, or repayment of dues to the government. The tribunal concluded that the applicant's claim for refund of advance payment does not fall within these categories. Therefore, the applicant is not an operational creditor, and the claim is not an operational debt.

5. Authorization and Procedural Compliance of the Application:
The corporate debtor contended that the application was not in the prescribed format and lacked proper authorization. The tribunal noted inconsistencies in the resolutions provided by the applicant regarding authorization. However, since the application was deemed not maintainable on other grounds, the tribunal did not delve deeply into these procedural issues.

Conclusion:
The tribunal held that the application was not maintainable under Section 9 of the Insolvency and Bankruptcy Code, 2016, as the applicant did not qualify as an operational creditor, and the claim did not constitute an operational debt. Consequently, the application was dismissed without any order as to costs.