2019 (2) TMI 887 - Tri - Insolvency and Bankruptcy

Corporate insolvency resolution process - unpaid operational debt - Held that - There is no escape from the conclusion that the corporate debtor has committed default and the amount of ₹ 47,34,736 has remained unpaid. Thus, default has been committed by the corporate debtor within the meaning of section 3(12) read with section 4 and section 9(1) of the Code, 2016. In the present case no petition under section 34 of the Arbitration Act or appeal under section 37 of the Arbitration Act is pending and the arbitral award has attained finality. As a sequel to the above discussion, this petition is admitted.

Issues Involved:
1. Validity of the operational creditor's claim.
2. Pendency of arbitration proceedings and its impact on the insolvency process.
3. Limitation period for filing the insolvency petition.
4. Compliance with mandatory provisions of the Insolvency and Bankruptcy Code (IBC).
5. Appointment of an interim resolution professional.
6. Declaration of moratorium and its implications.

Detailed Analysis:

1. Validity of the Operational Creditor's Claim:
The operational creditor, M/s. Lion Services Ltd., filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016, to initiate the corporate insolvency resolution process against M/s. Aura Management Services P. Ltd. The operational creditor provided facility management services to the corporate debtor under a memorandum of understanding, which was later amended to enhance the contract value. Despite regular services and invoices, the corporate debtor failed to pay ?16,20,070, leading to the foreclosure of the contract and subsequent legal notices. The arbitrator awarded ?23,55,590 with 12% interest per annum in favor of the operational creditor.

2. Pendency of Arbitration Proceedings and Its Impact on the Insolvency Process:
The respondent argued that the arbitration award is under execution and pending before the Patiala House Courts, New Delhi, which should bar the initiation of the insolvency process. However, the Tribunal referenced the Supreme Court's judgment in Innoventive Industries Ltd. v. ICICI Bank, stating that the pendency of any proceeding does not bar the initiation of the corporate insolvency resolution process under the IBC. The Tribunal rejected the argument, emphasizing that the non-obstante clause of the IBC prevails.

3. Limitation Period for Filing the Insolvency Petition:
The respondent contended that the petition was barred by limitation as it was filed after the arbitration award became due. The Tribunal clarified that the arbitration award attains finality only after the time for setting aside the award under Section 34 of the Arbitration Act expires. Since the execution proceeding was initiated within the permissible period, the amount under the award remains due and payable. The Tribunal found no merit in the argument concerning limitation.

4. Compliance with Mandatory Provisions of the IBC:
The respondent argued non-compliance with Section 9(5)(ii)(c) of the IBC, claiming that the demand notice was not received at the correct address. The Tribunal noted that the notice was served at the registered office address as per MCA records, which is compliant with Section 27 of the General Clauses Act and Section 20 of the Companies Act, 2013. The Tribunal rejected the argument, affirming that the service was effected correctly.

5. Appointment of an Interim Resolution Professional:
The operational creditor did not name an interim resolution professional, requesting the Tribunal to appoint one. The Tribunal appointed Mr. Mukesh Gupta as the interim resolution professional from the panel recommended by the Insolvency and Bankruptcy Board of India (IBBI), ensuring compliance with Section 16(3)(a) of the IBC.

6. Declaration of Moratorium and Its Implications:
The Tribunal declared a moratorium under Section 14 of the IBC, imposing prohibitions on:
- Institution or continuation of suits or proceedings against the corporate debtor.
- Transferring, encumbering, or disposing of any assets of the corporate debtor.
- Actions to foreclose, recover, or enforce any security interest.
- Recovery of any property by an owner or lessor.

The moratorium ensures the protection of the corporate debtor's assets and uninterrupted supply of essential goods and services during the insolvency process. The interim resolution professional is tasked with managing the corporate debtor's affairs, preserving property value, and ensuring cooperation from all personnel connected with the corporate debtor.

Conclusion:
The petition was admitted, and the Tribunal directed the interim resolution professional to make a public announcement and perform duties as per the IBC. The petitioner was instructed to pay ?2,00,000 to the interim resolution professional for expenses. The Registrar of Companies was directed to update the status of the corporate debtor on its website.

← Previous Next →