2022 (1) TMI 62 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors - existence of debt and dispute or not - HELD THAT - On perusal of the MCA master data updated by the respondent-company, it is seen that as on March 31, 2019 it is active compliant and is into manufacturing activity. It has a paid-up capital of ₹ 15 crores, though reduced to ₹ 5.39 crores due to negative reserves and surplus. It has tangibles assets of ₹ 4.46 crores and trade receivables of ₹ 7.59 crores. Its total current assets have increased in the last three years and stand at ₹ 19.46 crores. It had net revenue from operations of ₹ 19.31 crores which has increased over the last three years and shows a growth rate of 46 per cent. over last year. It has a net profit of ₹ 77 lakhs and an improving and positive return to equity ratio. Thus prima facie, it has sufficient income and assets to repay its debt and cannot be termed as insolvent. The respondent is not an insolvent company, the respondent should be given some more time to repay the debt. Considering the amount involved, its financial status and the present economic scenario, despite the argument of the petitioner that it is a fit case for admission, it would be fair to allow the respondent some more time. The Code cannot be used to jeopardise the financial health of an otherwise solvent company by pushing it into insolvency, which would be against the objects of the Code. Petition is disposed of by directing the respondent/corporate debtor to repay the balance debt or the amount as settled with the petitioner within a period of 6 months failing which the petitioner would be at liberty to file a fresh petition for admission.

Summary

Issues:
Initiation of corporate insolvency resolution process under section 7 of the Insolvency and Bankruptcy Code, 2016 based on default in payment.

Analysis:
The petitioner, a financial creditor, filed a petition seeking to initiate the corporate insolvency resolution process (CIRP) against the corporate debtor due to a default amounting to ?27,39,899.33 as on November 30, 2019. The petitioner had granted Export Finance Facility to the corporate debtor under various agreements, including the receivables purchase factoring agreement and an irrevocable undertaking for recourse. The corporate debtor failed to make payments towards the assigned invoices, leading to a commercial dispute with another party. Despite reminders and demand letters, the corporate debtor did not respond or make payments, establishing a default in financial debt. The respondent failed to file any objections despite legal representation, indicating acknowledgment of the debt.

Upon review of the relevant agreements and documents, it was confirmed that the corporate debtor admitted to a financial debt of USD 4,00,000 or its rupee equivalent along with interest. However, the Tribunal considered important legal precedents, emphasizing that the Insolvency and Bankruptcy Code is not meant to be misused to jeopardize the financial stability of a solvent company. The Tribunal noted the financial health of the respondent, as evidenced by its active compliance, manufacturing activities, assets, and revenue growth, indicating solvency.

Acknowledging the economic impact of the COVID-19 pandemic and legislative changes to protect industries, the Tribunal decided to grant the respondent more time to repay the debt. Despite the petitioner's argument for admission, the Tribunal emphasized the importance of not pushing a solvent company into insolvency, especially in the current economic climate. Therefore, the Tribunal disposed of the petition by directing the respondent to repay the debt within six months, allowing the petitioner to file a fresh petition if necessary. No costs were awarded in the judgment.