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2020 (12) TMI 244 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - HELD THAT - Instant Company Petition is filed to recover the outstanding amount in question. As per the Purchase Orders, the terms of payment is 60 days credit from Date of receipt of material and cause of action started to arise from the year 2016. The provisions of the Code cannot give any cause of action and cause of action rise with reference to facts of given case. Therefore, demand notice issued under the provisions of Code would not give cause of action to file the instant Petition. The Respondent has addressed a letter dated 14th December, 2017 to the Petitioner by inter alia confirming that they would clear the dues before 5th of January, 2018 with 24% interest Per annum. It is to be stated that the provisions of Code can be invoked to initiate CIRP on justified reasons, and it cannot be invoked with an attempt to recover outstanding amount. The Petitioner has not averred and substantiated that the Corporate Debtor has become insolvent. It is a settled position of law that the provisions of Code cannot be invoked for recovery of outstanding amount. The instant Company Petition is filed with an intention to recover the outstanding amount rather than to initiate CIRP in respect of the Corporate Debtor, which is against the object of the Code and the Petitioner also failed to substantiate the insolvency of the Corporate Debtor. Though the instant Petition is not a fit case to initiate CIRP for the aforesaid reasons, the Respondent is prima facie liable to be pay the admitted outstanding amount, and thus it would be just and proper for the Corporate Debtor to settle the admitted debt, instead of forcing the Petitioner again to approach judicial forum. Application dismissed.
Issues involved:
Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the IBC, 2016 based on default by a Corporate Debtor. Detailed Analysis: Issue 1: Default and Debt Dispute The Petitioner, an Operational Creditor, filed C.P.(IB)No.193/BB/2020 seeking to initiate CIRP against the Corporate Debtor, M/s. Riteway Packaging Private Limited, for defaulting on a total amount of ?17,91,483, including principal and interest. The Operational Creditor provided services against invoices and a Demand Notice was sent but remained unclaimed. The Corporate Debtor acknowledged the dues but failed to make the payment, leading to the default. The Petitioner argued that since the debt and default were not in dispute, the case should be admitted for CIRP. Issue 2: Legal Basis for CIRP Initiation The Petitioner cited relevant provisions of the IBC, 2016 and relied on various judgments to support the initiation of CIRP based on the undisputed default by the Corporate Debtor. The Purchase Orders and Invoices detailed the transactions between the parties, establishing the debt owed by the Corporate Debtor. However, the Respondent did not appear, and the Adjudicating Authority examined the facts and legal provisions to determine the validity of the CIRP initiation. Issue 3: Cause of Action and Insolvency The Adjudicating Authority noted that the cause of action for the debt arose from the Purchase Orders with a 60-day credit term, and the Petitioner failed to invoke the Negotiable Instrument Act for the dishonored cheque. The judgment emphasized that the IBC is not a substitute for a recovery forum and should not be used solely for debt recovery without proving insolvency. The Supreme Court precedent highlighted that CIRP should be based on justified reasons beyond mere debt and default, requiring the satisfaction of specific parameters before initiation. Conclusion: The Tribunal found that the Petitioner's intention was to recover the outstanding amount rather than genuinely initiate CIRP for insolvency. As the Petitioner failed to substantiate the insolvency of the Corporate Debtor, the C.P.(IB)No.193/BB/2020 was deemed not maintainable. The judgment granted liberty to the Petitioner to seek remedies under other laws for recovering the outstanding amount, directing the Respondent to settle the issue without costs.
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