2019 (5) TMI 1575 - AT - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution Process - appointment of Interim Resolution Professional - non-conformity with the provisions of Section 8 and 9 of I B Code - HELD THAT - Initiation of Corporate Insolvency Resolution Process at the instance of an Operational Creditor is provided for under the provision engrafted in Section 9 of the I B Code, whereunder an Operational Creditor may file an application before the Adjudicating Authority for initiating a Corporate Insolvency Resolution Process after complying with the statutory requirements of Section 8. The factum of Respondent No. 1 being appointed by Corporate Debtor as Assistant General Manager (Legal) on mutually agreed terms on a gross annual salary of ₹ 10 Lakhs in terms of Letter of Offer dated 10th January, 2014 is an admitted position in the case. Respondent No. 1 was required to join within seven days and letter of employment was to be issued subsequent to her joining. Though no such letter of employment required to be issued by the Corporate-Debtor is on record, it is the admitted position that Respondent No. 1 joined the organization viz. Corporate Debtor and rendered meritorious services in her capacity as AGM (Legal). No proof has also been educed to substantiate the contention that she was paid on an adhoc basis from time to time for the matters in which she was engaged and that such engagement was terminated w.e.f. November, 2015. In absence of proof of recall of letter of offer of employment to Respondent No. 1, and subsequent engagement as Retainer, the contention raised by the Appellant on this score deserves to be outrightly dismissed as a pure concoction, more so as the documents on record in general and the Letter dated 27th December, 2016 emanating from the Director of Corporate Debtor referred to hereinabove stares in the face of the Corporate Debtor. The defence raised by the Corporate Debtor before the Adjudicating Authority and the version put forth by the Appellant qua the claim of Respondent No.1, can be termed only as an attempt to wriggle out of the liability to deny the legitimate and legally payable claim of Respondent No. 1 and frustrate the Corporate Insolvency Resolution Process commenced at the instance of Respondent No. 1 on fabricated and concocted grounds. Appeal dismissed.

Summary

Issues Involved:
1. Non-conformity with the provisions of Section 8 and 9 of the Insolvency and Bankruptcy Code (I&B Code).
2. Failure of the Operational Creditor to substantiate her claim.
3. Existence of a genuine dispute regarding the outstanding salary dues.
4. Legitimacy of the Corporate Insolvency Resolution Process initiation.

Detailed Analysis:

Issue 1: Non-conformity with the provisions of Section 8 and 9 of the I&B Code
The Appellant argued that the application under Section 9 of the I&B Code was not in conformity with the statutory requirements, particularly Sections 8 and 9. The Adjudicating Authority found that the Corporate Debtor failed to respond to the demand notice within the statutory period, which is a prerequisite under Section 8(2). The Corporate Debtor’s defense was deemed spurious and an attempt to avoid the Corporate Insolvency Resolution Process.

Issue 2: Failure of the Operational Creditor to substantiate her claim
The Appellant contended that Respondent No. 1 did not substantiate her claim of outstanding salary dues. However, the Adjudicating Authority noted that Respondent No. 1 had provided sufficient evidence, including a letter from the Corporate Debtor’s Director acknowledging the outstanding dues and promising payment within a year. This letter was crucial in establishing the legitimacy of the claim.

Issue 3: Existence of a genuine dispute regarding the outstanding salary dues
The Corporate Debtor argued that there was a pre-existing dispute regarding the employment status and performance of Respondent No. 1, which should invalidate the claim. However, the Adjudicating Authority found no credible evidence supporting this defense. The letter dated 27th December 2016, from the Corporate Debtor’s Director, did not dispute the employment status or performance but acknowledged the financial difficulties in paying the outstanding dues, thus undermining the argument of a genuine dispute.

Issue 4: Legitimacy of the Corporate Insolvency Resolution Process initiation
The Adjudicating Authority concluded that the initiation of the Corporate Insolvency Resolution Process was legitimate. The Operational Creditor had complied with the necessary provisions under the I&B Code, and the Corporate Debtor’s defenses were found to be fabricated and unsubstantiated. The appeal was dismissed as frivolous, and costs were imposed on the Appellant.

Conclusion:
The appeal was dismissed, and the Adjudicating Authority's order was upheld. The Corporate Debtor’s defenses were deemed spurious and an attempt to avoid liability. Costs of ?50,000 were imposed on the Appellant for filing a frivolous appeal. The decision emphasized the importance of adhering to statutory requirements under the I&B Code and the need for genuine disputes to be substantiated with credible evidence.