2022 (4) TMI 526 - 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 pre-existing dispute or not - HELD THAT - The contention of the operational Creditor is that all the decisions taken by the Corporate Debtor are to be approved by the Management at Abu Dhabi and hence, when the Management at Abu Dhabi does not instruct anything with regard to the dues of the Operational Creditor, the same cannot be withheld. The dispute as can be seen from the reply notice is with Mr. M.V. Bhushanam, who was allegedly responsible for the financial loss of the Corporate Debtor. It also can be noted from the reply notice that the Corporate Debtor is not doing well and is in the state of losses and that endeavours to bring out the company from the loss making to profit making are being done. The invoices pertaining to the supplies are filed and the same are not denied. There is acknowledgment of the debt by way of acknowledging the letter with the subject confirmation of accounts which is dated 11.12.2017. The pre-existing dispute which is taken as a defence by the Corporate Debtor should relate to the claim made by the Operational Creditor. The dispute, which is for the first time stated in the reply notice, is only with regard to Mr. M.V. Bhushanam. Even after Mr. M.V. Bhushanam was removed as an Authorised Signatory the liability of the Corporate Debtor is acknowledged. Payments were being made till 16.04.2016. No action was taken with regard to the alleged mismanagement of Mr. M.V. Bhushanam prior to 16.04.2016 and the due amount was also confirmed on 11.12.2017. There is no protest made while acknowledging the said accounts. When no action is initiated in respect of the said mismanagement, projecting the mismanagement as the preexisting dispute, only when a demand is raised by the Operational Creditor, cannot be considered as a pre-existing dispute. When the amount due is not disputed and when it is not disputed that the goods under the invoices were delivered to the Corporate Debtor, the contention that they are lying idle on their site cannot be given weight. Two years have elapsed from the supply of the material till the filing of this application, during which period there was no action taken by the Corporate Debtor with regard to the said material. Hence, all the defences raised by the Corporate Debtor get marginalized from the fact that the supply of material is not denied and that the statement of account was confirmed on 11.12.2017. Mere mentioning in the reply notice, that there is a pre-existing dispute does not deprive the Tribunal of its power to order CIRP. If the dispute is found to be not genuine and not related to the claim, the same can be ignored. Hence, it is clear that the Corporate Debtor has fallen due the amount that is claimed by the Operational Creditor. This is a fit case to admit and order initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor - petition admitted - moratorium declared.

Summary

Issues Involved:
1. Pre-existing dispute regarding the claim amount.
2. Existence of debt due to the Operational Creditor and non-discharge by the Corporate Debtor.

Issue-wise Detailed Analysis:

I. Pre-existing Dispute Regarding the Claim Amount:

The Corporate Debtor argued that there is a pre-existing dispute, primarily centered around the alleged mismanagement by Mr. M.V. Bhushanam, a former director of the Corporate Debtor and a current director of the Operational Creditor. The Corporate Debtor claimed that Mr. Bhushanam placed orders favoring the Operational Creditor without considering the actual requirements, resulting in non-movable items piling up in the factory. This mismanagement allegedly caused financial losses, leading to heavy interest on borrowings for working capital.

The Tribunal noted that the dispute with Mr. Bhushanam, who was removed as an authorized signatory on 10.06.2017, does not constitute a pre-existing dispute related to the claim made by the Operational Creditor. The Board of Directors' minutes and subsequent actions did not indicate any protest or dispute regarding the transactions between the Operational Creditor and the Corporate Debtor. The Tribunal emphasized that the acknowledgment of debt in the "confirmation of accounts" letter dated 11.12.2017, post Mr. Bhushanam's removal, implies that the transactions were not disputed. The Tribunal concluded that the alleged mismanagement by Mr. Bhushanam does not qualify as a pre-existing dispute relevant to the claim amount.

II. Existence of Debt Due to the Operational Creditor and Non-Discharge by the Corporate Debtor:

The Operational Creditor issued a demand notice under Section 8 of IBC, claiming an outstanding amount of ?1,93,44,700/-. The Corporate Debtor's reply denied liability, attributing the debt to Mr. Bhushanam's mismanagement. However, the Tribunal observed that the invoices for supplies made by the Operational Creditor were not denied and were acknowledged in the "confirmation of accounts" letter dated 11.12.2017, indicating a credit amount of ?2,24,27,544/-.

The Tribunal found that the Corporate Debtor acknowledged the debt and continued making payments until 16.04.2016. The Tribunal noted that no legal action was initiated against Mr. Bhushanam for the alleged mismanagement, and the dispute raised in the reply notice was not genuine or related to the claim. The Tribunal emphasized that the supply of material was undisputed, and the statement of account was confirmed without protest, marginalizing the defenses raised by the Corporate Debtor.

Conclusion:

The Tribunal concluded that the Corporate Debtor has an outstanding debt to the Operational Creditor, and there was no genuine pre-existing dispute. Therefore, the Tribunal admitted the Company Petition and ordered the initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. Dr. Govindarajula Venkata Narasimha Rao was appointed as the Interim Resolution Professional (IRP), with directions to take charge of the Corporate Debtor's management and proceed with the CIRP.

Order:

1. The Company Petition is admitted, and the CIRP shall commence from the date of the order and be completed within 180 days.
2. Dr. Govindarajula Venkata Narasimha Rao is appointed as the IRP.
3. A moratorium is declared in respect of the Corporate Debtor as per Section 14 of the Code.
4. The Directors, Promoters, or any other persons associated with the management of the Corporate Debtor shall extend all assistance and cooperation to the IRP.
5. The Registry shall communicate the order to the Operational Creditor and the Corporate Debtor forthwith.
6. The Operational Creditor and the Registry shall send a copy of the order to the IRP for necessary compliance.