2020 (10) TMI 495 - AT - IBC

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - HELD THAT - It is observed that there is business relationship between the two parties and has gone into rough weather from March, 2018. It is not in dispute that both the operational creditor and the corporate debtor were maintaining Running Account - It is also observed that the operational creditor is making all attempts to realize the payment and conveniently used I B Code, 2016 for faster realization. The Operational Creditor is claiming that the Debt due is more than ₹ 1 lac. If, it may also be due for payment as it will be becoming the job of IRP to reconcile and get the disputed amount segregated and the claim can be counted provided the application meets the criteria of Section 8 9 of the Code. The Object of the Code is not recovery of money but to bring out of insolvency and maximization of value of assets of the Corporate Debtor. It is also very much clear that if there is a dispute as per relevant provisions of the Code, it is incumbent on the Adjudicating Authority to reject the petition/application as per the provisions of the Section 9 of the Code. It is also very much clear in this case that there is a dispute of the Debt and dispute resolution mechanism is also provided in the purchase order. Since the I B Code, 2016 debars the application of the Code for recovery of money as well as if there is a dispute then also petition/application requires to be rejected. The Hon ble Supreme Court has already held in Mobilox Innovations Pvt. Ltd., Vs. Kirusa Software pvt. Ltd. 2017 (9) TMI 1270 - SUPREME COURT , that IBC is not intended to be a substitute for recovery forum. It is also laid down that wherever there is existence of real dispute, the IBC provisions cannot be invoked - Since Hon ble Apex Court has clearly laid down the mechanism to be operated by Operational Creditor in terms of Section 8 9 of the Code, it is very clear that the undisputed debt is sine qua non of initiating CIRP as also the debt should be due and payable. Since, the order of Adjudicating Authority in the present case, does not meet the above criteria and hence the appeal needs to be allowed - We are not passing any comment on the merit of the dispute between the parties and the parties are free to approach appropriate forum for recovery or dispute resolution. Appeal allowed.

Summary

Issues Involved:
1. Existence of Operational Debt
2. Pre-existing Dispute
3. Default and Limitation Period
4. Reconciliation of Accounts
5. Application of Insolvency and Bankruptcy Code (IBC)
6. Role and Actions of Interim Resolution Professional (IRP)

Issue-wise Detailed Analysis:

1. Existence of Operational Debt:
The Adjudicating Authority initiated the Corporate Insolvency Resolution Process (CIRP) based on the existence of operational debt above Rs. One Lac, which was due and defaulted on 30.11.2016. The petition was filed within the limitation period, and there was no pre-existing dispute prior to the notice issued by the Operational Creditor. The defaulted amount was Rs. 1,81,61,422.00 as per invoices dated between April 2016 and March 2018.

2. Pre-existing Dispute:
The Appellant argued a pre-existing dispute, citing an email dated 29.03.2018 from the Corporate Debtor to the Operational Creditor, indicating discrepancies in the ledger and rejection of materials. The Appellant also contested the outstanding amount, pointing out inconsistencies in the amounts mentioned in the impugned order and the demand notice. The Operational Creditor maintained that there was no pre-existing dispute and provided evidence of continuous supply and requests for payment.

3. Default and Limitation Period:
The default occurred on 30.11.2016, and the petition was filed on 11.07.2018, within the limitation period. The Operational Creditor claimed the debt due was more than Rs. 1 lac, which was to be reconciled by the IRP. The Adjudicating Authority noted multiple dates of default and the need for reconciliation of accounts.

4. Reconciliation of Accounts:
The Tribunal observed that the business relationship between the parties had deteriorated since March 2018, and both parties maintained a running account. The Tribunal emphasized the need for reconciliation between the parties to determine the actual amount due, noting multiple dates of default and varying payment terms in purchase orders and invoices.

5. Application of Insolvency and Bankruptcy Code (IBC):
The Tribunal highlighted that the objective of the IBC is not the recovery of money but to resolve insolvency and maximize the value of assets. The existence of a dispute as per Section 9 of the Code requires the rejection of the petition. The Tribunal referenced the Supreme Court's ruling in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd., which stated that IBC is not a substitute for a recovery forum and should not be invoked where there is a real dispute.

6. Role and Actions of Interim Resolution Professional (IRP):
The IRP issued a public announcement and constituted the Committee of Creditors. However, the Tribunal found that the Adjudicating Authority's order did not meet the criteria of undisputed debt due and payable. Consequently, the Tribunal set aside the impugned order, declared the actions of the IRP illegal, and released the Corporate Debtor from the CIRP, allowing it to function independently through its Board of Directors. The Corporate Debtor was directed to bear the CIRP costs incurred by the IRP/RP and recover them from the Operational Creditor.

Conclusion:
The appeal was allowed, the impugned order dated 13.03.2020 was set aside, and the Corporate Debtor was released from the CIRP. The Tribunal emphasized the need for reconciliation of accounts and the proper application of the IBC, highlighting that the Code is not intended for debt recovery but for resolving insolvency.