2021 (5) TMI 248 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute not - ratification of contract - HELD THAT - Since the Corporate Debtor was completely aware of the existence of such outstanding balances in its books, the confirmation of balances by their Purchase Manager cannot be considered as voidable and hence cannot be invalid. In continuation to the above, the contract was not rescinded and hence sub-section 2 of Section 27 of the Specific Relief Act, 1963 does not permit rescission of the contract and the grounds that it is impliedly ratified - Further, the Corporate Debtor's objection that the Purchase Manager cannot enter or sign the confirmation of balances of its creditors on behalf of the Corporate Debtor and thereby making the entire transaction as invalid ab initio is not sustainable. For the purpose of defeating the claim of the Operational Creditor, the Corporate Debtor is raising a feeble defence, which is not supported by any documentary evidence, that the Purchase Manager is not the Authorized Signatory of the Corporate Debtor in order to acknowledge the accounts. The Corporate Debtor has not placed on record any concrete evidence to show that the said signature has been obtained balance conformation of accounts of the Corporate Debtor. This Bench is inclined to admit this Application as the Applicant has made out a case and also satisfied this Adjudicating Authority for admitting this Application. It is also proved that there is a debt due and payable by the Corporate Debtor - Application admitted - moratorium declared.

Summary

Issues:
- Company petition under section 9 of the Insolvency and Bankruptcy Code 2016
- Dispute over outstanding debt between Operational Creditor and Corporate Debtor
- Allegation of collusion in obtaining balance confirmation
- Defence by Corporate Debtor based on limitation and lack of authority in ledger acknowledgment
- Application for appointment of Interim Resolution Professional

Analysis:
1. The Company Petition was filed by an Operational Creditor against a Corporate Debtor under section 9 of the Insolvency and Bankruptcy Code 2016. The Operational Creditor claimed a debt of ?37,04,830, including principal and interest amounts outstanding. The demand notice was sent to the Corporate Debtor on 01.11.2019.

2. The Operational Creditor contended that despite repeated reminders, the Corporate Debtor failed to make payments or respond to communications regarding the outstanding invoices. The Operational Creditor sought insolvency proceedings due to the Corporate Debtor's inability to pay its debts.

3. The Corporate Debtor, in response, argued that the ledger had not been signed by an authorized signatory and alleged collusion between the Operational Creditor and the Purchase Manager in obtaining balance confirmation. The Corporate Debtor claimed that the debt acknowledgment was not valid under the Limitation Act, 1963.

4. The Corporate Debtor further contended that the application was time-barred as it was filed after the limitation period. They relied on legal precedents to support their argument that time-barred debts should not be given a new lease of life through insolvency proceedings.

5. The Operational Creditor defended the balance confirmation as an acknowledgment of debt and argued that the Corporate Debtor's failure to rescind the confirmation implied ratification of the contract. They cited provisions from the Indian Contract Act, 1872 and the Specific Relief Act, 1963 to support their position.

6. The Tribunal, after considering the submissions, admitted the Company Petition. The Tribunal found that the Operational Creditor had established a case for admitting the application, as there was a debt due and payable by the Corporate Debtor. The Tribunal appointed an Interim Resolution Professional and declared a moratorium on certain actions against the Corporate Debtor as per the provisions of the Insolvency and Bankruptcy Code 2016.

7. The Tribunal's decision was based on the acknowledgment of the debt by the Corporate Debtor, the lack of concrete evidence to refute the claim, and the satisfaction of the Adjudicating Authority regarding the validity of the application. The Tribunal's order included the appointment of the Interim Resolution Professional and the initiation of the Corporate Insolvency Resolution Process.