2020 (10) TMI 63 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Debt or not - existence of debt and dispute or not - HELD THAT - As per the General Agency Agreements from 2003 to 2017 between the Operational Creditor and the Corporate Debtor, the Corporate Debtor acted as an agent of the former in India, and collected various payments due from the customers of the Operational Creditor and remitted the same to the Operational Creditor. The Operational Creditor has annexed various invoices and debit notes with the Petition as evidence of the claimed amount. As the Corporate Debtor is an agent and service provider of the Operational Creditor, the amounts due under these transactions would fall within the ambit of 'operational debt' as defined in section 5(21) of the Insolvency and Bankruptcy Code, 2016. As regards the financial status of the Corporate Debtor, it has contended that this condition does not exist, that it is a going concern and can repay its debts from its existing and probable assets. However, a perusal of its latest Audited Financial Statement shows that the Company has incurred losses including cash losses and the net worth of the Company is negative. Further, from its Independent Auditors report it is seen that a material uncertainty exists that may cast a doubt on its ability to continue as a going concern. Further, while admitting the debt owed to the Operational Creditor, Corporate Debtor submits that in order to resolve the issue it offered to settle the amounts due, after adjusting all the receivables within a period of two years, by selling the immovable assets standing in the name of the Corporate Debtor. Application admitted - moratorium declared - Post the case for report of IRP on 15th July 2020.

Summary

Issues Involved:
1. Existence of debt and default by the Corporate Debtor.
2. Pre-existing dispute regarding the debt.
3. Validity of claims and invoices by the Operational Creditor.
4. Admission of liability by the Corporate Debtor.
5. Financial status and solvency of the Corporate Debtor.
6. Appointment of Interim Resolution Professional (IRP) and initiation of Corporate Insolvency Resolution Process (CIRP).

Issue-wise Detailed Analysis:

1. Existence of Debt and Default by the Corporate Debtor:
The Operational Creditor filed a petition under Section 9 of the IBC, 2016, seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor for an outstanding amount of USD 17,35,645.46. The Corporate Debtor acted as the representative of the Operational Creditor in India from 2002 to 2018, collecting payments from customers and remitting them to the Operational Creditor. The Corporate Debtor failed to make payments aggregating to USD 13,40,572.89 for freight charges, USD 1,41,072.57 for motorboat purchase and repair charges, and USD 2,54,000 for advances made by the Operational Creditor. The Corporate Debtor admitted to owing certain amounts but disputed the total claimed by the Operational Creditor.

2. Pre-existing Dispute Regarding the Debt:
The Corporate Debtor contended that the petition should be rejected due to a pre-existing dispute regarding the amount of debt. They argued that the amounts disclosed in their financial statements did not match the amounts claimed by the Operational Creditor, indicating a pre-existing dispute. However, the tribunal found that the Corporate Debtor did not have a valid or bona fide pre-existing dispute. The main contention was the mismatch in amounts, which was deemed untenable as there was no plausible ground to deny or dispute the liability altogether.

3. Validity of Claims and Invoices by the Operational Creditor:
The Corporate Debtor argued that the claims made by the Operational Creditor were false and fabricated, with invalid debit notes and invoices. They also contended that certain claims were barred by the Limitation Act. However, the tribunal noted that the Corporate Debtor did not raise any dispute regarding falsification or fabrication of invoices prior to the demand notice. The tribunal found that the claims and invoices produced by the Operational Creditor were valid and within the limitation period.

4. Admission of Liability by the Corporate Debtor:
The tribunal observed that the Corporate Debtor admitted to various amounts payable to the Operational Creditor in their statement of objections and reply to the demand notice. The Corporate Debtor admitted to receiving USD 2,54,000, remaining import bills of USD 61,119.45, and outstanding freight payables of USD 13,38,807.80. The Corporate Debtor also expressed willingness to settle the amounts due within two years by selling immovable assets. The tribunal found that there was an admitted liability for an amount higher than Rs. One Lakh.

5. Financial Status and Solvency of the Corporate Debtor:
The Corporate Debtor contended that they were commercially solvent and a going concern. However, the tribunal noted that the latest audited financial statements showed losses, negative net worth, and material uncertainty regarding the Corporate Debtor's ability to continue as a going concern. The Corporate Debtor's only source of income, being commission from the Operational Creditor, was terminated in September 2018. The tribunal concluded that the Corporate Debtor had lost its substratum and ability to pay its debts, making it a fit case for initiation of CIRP.

6. Appointment of Interim Resolution Professional (IRP) and Initiation of CIRP:
The tribunal found that the petition was filed in accordance with the law, and the Operational Creditor suggested a qualified Resolution Professional, Mr. Ritesh Prakash Adatiya, who consented to be appointed as IRP. The tribunal declared a moratorium prohibiting suits, transferring assets, and other actions against the Corporate Debtor. The IRP was directed to carry out functions under the IBC, 2016, and file progress reports. The Board of Directors and staff of the Corporate Debtor were directed to cooperate with the IRP. The case was posted for the IRP's report on 15th July 2020.

Conclusion:
The tribunal admitted the petition and initiated the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, appointing Mr. Ritesh Prakash Adatiya as the Interim Resolution Professional (IRP). The tribunal found that there was an admitted debt and default, with no valid pre-existing dispute, and the Corporate Debtor was not financially solvent.