2021 (8) TMI 719 - AT - 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 or not - whether the Appellant has made out any case invoking the jurisdiction of the Adjudicating Authority Under Section 9 of the IBC 2016? - HELD THAT - The Respondent had admitted the debt on various occasions and no dispute raised prior to issuance of demand notice, the application of the Appellant is complete and fulfilled of the criteria as enumerated under Section 9 of the IBC. In view of the fulfilment of the requirements/qualifications for initiation of CIRP, the application has to be admitted. The Ld. Adjudicating Authority is directed to admit the application in accordance with Law, after affording opportunity to the respective parties - application admitted - appeal allowed.

Summary

Issues Involved:
1. Whether the appellant made out a case for invoking the jurisdiction of the Adjudicating Authority under Section 9 of the IBC 2016.
2. Whether the Adjudicating Authority erred in dismissing the application based on ongoing negotiations and partial payments.
3. Whether the existence of acknowledged debt and default by the respondent was sufficient for initiating CIRP.

Issue-Wise Detailed Analysis:

1. Whether the appellant made out a case for invoking the jurisdiction of the Adjudicating Authority under Section 9 of the IBC 2016:

The appellant filed an application under Section 9 of the IBC 2016 as an Operational Creditor seeking initiation of Corporate Insolvency Resolution Process (CIRP) against the respondent due to non-payment of operational debt. The appellant had performed construction work under a contract dated 14th January 2011 and issued a Final Payment Certificate on 9th May 2019 for ?104,74,33,943, with the net payable amount calculated at ?12,45,89,866. The respondent acknowledged the debt and agreed to a payment schedule, which was later revised. Despite assurances, the respondent failed to make payments, leading the appellant to issue a Statutory Demand Notice on 5th August 2020. The respondent did not dispute the debt but requested more time to respond. The appellant argued that the application should not be rejected based on prior negotiations and partial payments, citing the judgment in Mobilox Innovations Private Limited vs Kirusa Software Private Limited.

2. Whether the Adjudicating Authority erred in dismissing the application based on ongoing negotiations and partial payments:

The Adjudicating Authority dismissed the application, noting that the parties were still negotiating payment terms and that the respondent was willing to pay, albeit delayed due to the economic impact of COVID-19. The Authority observed that pushing the Corporate Debtor into CIRP or liquidation during such uncertain times might not be fruitful. The Authority also held that the application appeared to be premature and more in the nature of a debt recovery process, which was impermissible under the Code. However, the Tribunal found this stance illegal, emphasizing that the main objective of the IBC is the resolution of the Corporate Debtor in a time-bound manner. The Tribunal noted that the Adjudicating Authority should have focused on whether the appellant fulfilled the criteria under Section 9 of the IBC.

3. Whether the existence of acknowledged debt and default by the respondent was sufficient for initiating CIRP:

The Tribunal noted that the respondent had acknowledged the debt on various occasions and did not dispute the amount payable. The records showed that the respondent defaulted on payments despite agreeing to a revised payment schedule. The Tribunal emphasized that the existence of debt and default, without any pre-existing dispute, fulfilled the criteria under Section 9 of the IBC. The Tribunal referred to the judgment in Mobilox Innovations, which held that an application should be rejected only if there is a pre-existing dispute prior to the issuance of the demand notice. In this case, there was no such dispute, and the debt was clearly admitted and due. Therefore, the Tribunal concluded that the application should have been admitted.

Findings:

The Tribunal found that the respondent had admitted the debt and defaulted on payments, and there was no pre-existing dispute. The appellant's application fulfilled the criteria under Section 9 of the IBC, and the Adjudicating Authority erred in dismissing it based on ongoing negotiations and partial payments. The Tribunal set aside the impugned order and directed the Adjudicating Authority to admit the application in accordance with the law. The appeal succeeded, with no orders as to costs.