2020 (9) TMI 1083 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Settlement of alleged dues - existence of debt and dispute or not - HELD THAT - The instant Company Petition is filed with an intention to recover the alleged outstanding amount rather than to seek initiation of CIRP in respect of the Corporate Debtor, which is against the object of the Code. The Petitioner cannot be permitted to bargain for settlement of alleged dues, in a case filed under Section 9 of Code. Petition not maintainable and is dismissed.

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP)
2. Existence of Operational Debt and Default
3. Allegations of Multiple Proceedings and Abuse of Process
4. Applicability of Increased Threshold for CIRP
5. Arbitration Clause and Alternative Dispute Resolution
6. Legal Principle of Double Jeopardy

Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP):
The petitioner, M/s. Prime Assetsource Pvt. Ltd., sought to initiate CIRP against M/s. Body Sculpt Health Club Pvt. Ltd. under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016, for a default amounting to ?63,15,924.24 along with interest at 21% per annum till August 2019. The petitioner claimed that the respondent failed to clear the outstanding dues despite repeated demands and issuance of post-dated cheques, which were dishonored.

2. Existence of Operational Debt and Default:
The petitioner and respondent had entered into three Master Equipment Rental Agreements from 2015 to 2016. The petitioner raised invoices totaling ?2,27,68,068, of which ?1,79,55,128 was paid by the respondent, leaving a balance of ?48,12,940. The petitioner also claimed an additional ?15,02,984.24 as interest. The respondent acknowledged part-payment but disputed the interest rate and claimed that the petitioner was using the CIRP process to recover dues rather than resolve insolvency.

3. Allegations of Multiple Proceedings and Abuse of Process:
The respondent argued that the petitioner was pursuing multiple legal proceedings for the same claim, including actions under Section 138 of the Negotiable Instruments Act, 1881, for dishonored cheques. The respondent contended that the petitioner was abusing the provisions of the IBC as a recovery mechanism rather than for insolvency resolution.

4. Applicability of Increased Threshold for CIRP:
The tribunal noted that the Government of India had increased the threshold for initiating CIRP from ?1 lakh to ?1 crore due to the economic impact of the COVID-19 pandemic. Since the amount in question was less than ?1 crore, the tribunal held that the provisions of Part II of the IBC, which includes Section 9, were not applicable.

5. Arbitration Clause and Alternative Dispute Resolution:
The agreements between the parties included an arbitration clause, which provided for the resolution of disputes through arbitration in Bangalore. The tribunal observed that the petitioner had not attempted to resolve the dispute through arbitration or mediation before initiating CIRP. The tribunal emphasized that the petitioner should have pursued alternative dispute resolution mechanisms as stipulated in the agreements.

6. Legal Principle of Double Jeopardy:
The tribunal highlighted the principle of double jeopardy, noting that the petitioner had already initiated criminal proceedings under the Negotiable Instruments Act for the dishonored cheques. The tribunal held that pursuing CIRP for the same claim amounted to double jeopardy and was not permissible.

Conclusion:
The tribunal concluded that the petitioner's primary objective was to recover the outstanding amount rather than resolve insolvency. The tribunal emphasized that the IBC is not intended to be a substitute for a recovery forum and that the existence of an undisputed debt is a sine qua non for initiating CIRP. The tribunal dismissed the petition as not maintainable but allowed the parties to settle their disputes through other legal remedies, including the ongoing proceedings under the Negotiable Instruments Act.

← Previous Next →