2020 (5) TMI 99 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate debtor failed to make repayment of its debt - debt due and payable or not - existence of debt and dispute or not - HELD THAT - It is evident from the record that there exist no Agreement as between the Operational Creditor and the Corporate Debtor for supply of services as contemplated between the parties. The Operational Creditor has placed on record only the Invoices as raised by them against the Corporate Debtor. It is an undisputed fact that the Managing Partner of the Operational Creditor whom through the present petition has been filed is holding 36.84% stake of the shareholding in the Corporate Debtor. Further, the filing of C.P. No. 4 of 2016, by the Managing Partner against the Corporate Debtor, which is pending on the file of this Tribunal, is a fact borne on record and the same goes on to show that there exists a pre-existing dispute between the parties. From the facts narrated, it is made that there exist a dispute between the parties and the said dispute was in existence even before the issuance of the Demand Notice by the Operational Creditor. The factum of filing of a C.P. No. 4 of 2016 by the Managing Partner of the Operational Creditor in his personal capacity against the Corporate Debtor and others also dealing with the transactions would show that there exist dispute between the parties. The Hon'ble Supreme Court in Mobilox Innovations (P.) Ltd. v. Kirusa Software (P.) Ltd. 2017 (9) TMI 1270 - SUPREME COURT held that the 'existence of dispute' and/or the suit or arbitration proceeding must be pre-existing i.e. it must exist before the receipt of the Demand Notice or Invoice as the case maybe. Petition dismissed.

Summary

Issues Involved:
1. Existence of debt and default by the Corporate Debtor.
2. Pre-existing dispute between the Operational Creditor and Corporate Debtor.
3. Authority and validity of the petition filed by the Operational Creditor.
4. Related party transactions under Section 188 of the Companies Act, 2013.

Issue-wise Detailed Analysis:

1. Existence of Debt and Default by the Corporate Debtor:
The Operational Creditor, M/s. Sagaya Annai Associates, filed an application under Section 9 of the Insolvency & Bankruptcy Code, 2016, against M/s. Stores N Move Private Limited, seeking to initiate the Corporate Insolvency Resolution Process (CIRP). The Operational Creditor claimed a sum of ?32.94 lakh was due for services rendered, specifically manpower supply. The Corporate Debtor acknowledged partial payment but disputed the remaining amount.

2. Pre-existing Dispute Between the Operational Creditor and Corporate Debtor:
The Corporate Debtor argued that there was a pre-existing dispute, evidenced by email correspondences from 2016 and 2017, which indicated ongoing disagreements about the debt. The Tribunal noted the existence of a dispute as early as 2016, prior to the issuance of the demand notice in 2018. The Tribunal referenced the Supreme Court’s decision in Mobilox Innovations (P.) Ltd. v. Kirusa Software (P.) Ltd., which emphasized that any pre-existing dispute must be considered before admitting a CIRP application.

3. Authority and Validity of the Petition Filed by the Operational Creditor:
The Corporate Debtor challenged the authority of the Operational Creditor's Managing Partner, who held a significant stake in the Corporate Debtor, to file the petition. The Tribunal found that the Managing Partner, holding 36.84% of the Corporate Debtor’s shares, had also filed a separate petition alleging oppression and mismanagement, indicating a conflict of interest and further supporting the existence of a dispute.

4. Related Party Transactions Under Section 188 of the Companies Act, 2013:
The Corporate Debtor contended that the transactions between the parties were related party transactions requiring board approval, which was not obtained. The Tribunal agreed, noting that the financial statements and auditor’s report classified these transactions as related party transactions. The Tribunal rejected the Operational Creditor’s argument that the transactions were in the ordinary course of business and exempt from Section 188 requirements.

Conclusion:
The Tribunal concluded that there was a genuine pre-existing dispute between the parties, which was not spurious or illusory. Consequently, the petition to initiate CIRP was dismissed without costs. The judgment emphasized the importance of resolving any pre-existing disputes before proceeding with insolvency applications under the IBC.