2020 (3) TMI 162 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate debtor failed to make repayment of its debt - existence of debt and dispute - HELD THAT - Under the arrangement, the Corporate Debtor is not liable to pay monies/debt which was due and payable by M/s Mahalasa Acoustic Pvt. Ltd. Therefore, it can be said that there is no debt due from the Corporate Debtor to the Petitioner since no invoice was raised on the Corporate Debtor and the proforma invoices were raised on M/s. Mahalasa Acoustic Pvt. Ltd. The Petitioner has failed to establish the debt and there is no debt as defined under Section 3(11) of the Code which provides that debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt . Petition dismissed.

Summary

Issues:
1. Whether the Corporate Insolvency Resolution Process (CIRP) should be initiated against the Corporate Debtor for default in payment.
2. Whether the Petitioner is entitled to fees from the Corporate Debtor based on the engagement agreement.
3. Whether the demand notice issued by the Petitioner to the Corporate Debtor is valid.

Analysis:
1. The Petitioner, a financial advisory firm, filed a Company Petition seeking to initiate the CIRP against the Corporate Debtor for defaulting on a payment of ?32,95,144. The Petitioner alleged default under Sections 8 and 9 of the Insolvency & Bankruptcy Code. The engagement agreement outlined fees payable by the Corporate Debtor for financial services provided by the Petitioner, including raising funds through loans. The Petitioner raised proforma invoices for services rendered to a group company of the Corporate Debtor. However, the Corporate Debtor disputed the claim, stating that the success fee was contingent on availing finance facilities, not just sanctions. The Corporate Debtor argued that the Petitioner should refund an amount due to the discrepancy between fees paid and services rendered. The Tribunal noted that while services were provided to the group company, the demand notice and petition were directed at the Corporate Debtor, creating a mismatch. The engagement letter clarified that the group companies would avail services, making the Corporate Debtor not directly liable for payments due to another entity. Therefore, the Tribunal found no debt due from the Corporate Debtor to the Petitioner, resulting in the dismissal of the petition.

2. The engagement agreement between the Petitioner and the Corporate Debtor specified fees for services rendered, including an upfront payment and success fee based on funds raised. Despite raising proforma invoices for services provided to a group company of the Corporate Debtor, the Petitioner issued a demand notice and filed a petition against the Corporate Debtor. The Corporate Debtor contended that no debt was owed directly to the Petitioner as the services were for the benefit of the group company. The Tribunal highlighted the mismatch between services rendered and the entity pursued for payment, leading to the dismissal of the petition due to the lack of debt established against the Corporate Debtor.

3. The Petitioner's claim for payment from the Corporate Debtor was based on the engagement agreement for financial services provided. However, the Tribunal found that the demand notice and petition were misdirected towards the Corporate Debtor, despite services being rendered to a group company. This discrepancy led to the dismissal of the petition as no debt was established against the Corporate Debtor under the Insolvency & Bankruptcy Code. The Tribunal emphasized the importance of correctly identifying the debtor when seeking payments based on service agreements to avoid procedural errors and ensure legal validity.