2022 (5) TMI 658 - 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 or not - Whether the Operational Creditor can file this Petition in terms of the Supplementary Agreement which provides for sale of the pledged property in case of default? - HELD THAT - The contention that by issuing a notice that the pledged goods would be put to sale, the right to proceed under Section 9 of IBC is not available to the Operational Creditor, is not impressive. The Pawnee is given ample powers under Section 176 where it is said that the Pawnee can bring a suit and also retain the pledged goods as collateral security or he may sell the thing pledged by giving notice to the Pawnor. Simply by issuance of a notice it cannot be said that the right given to the Pawnee to proceed otherwise than by selling the pledged property would not be available. The Operational Creditor has stopped at the stage of issuing notice and did not go further on the sale of the pledged goods - Issue is answered in favour of the Operational Creditor holding that this Petition filed by Operational Creditor is maintainable. Whether there is a debt due by the Corporate Debtor to the Operational Creditor and whether the Corporate Debtor has defaulted in discharging the said debt? - HELD THAT - The law is well settled that the Adjudicating Authority has to admit the application once it is found that the admitted debt due is beyond the threshold limit which in this case is Rs. 1 Lakh and it is evident that the Corporate Debtor has not discharged even the admitted debt - the Corporate Debtor is due a debt to the Operational creditor and has defaulted in discharging the same. The petition is admitted - moratorium declared.

Issues Involved:
1. Whether the Operational Creditor can file this Petition in terms of the Supplementary Agreement which provides for sale of the pledged property in case of default.
2. Whether there is a debt due by the Corporate Debtor to the Operational Creditor and whether the Corporate Debtor has defaulted in discharging the said debt.
3. To what result.

Issue-wise Analysis:

I. Whether the Operational Creditor can file this Petition in terms of the Supplementary Agreement which provides for sale of the pledged property in case of default:

a. The Corporate Debtor argued that the Supplementary Agreement requires the Operational Creditor to first sell the pledged property before filing an application under Section 9 of the Insolvency and Bankruptcy Code (IBC). The Agreement under clause 5.1 allows the Operational Creditor to recover dues by selling the pledged property. Clause 5.2 states that if the Operational Creditor cannot realize the security due to reasons attributable to the Corporate Debtor or others, the Operational Creditor can sell other raw materials to recover the debt.

b. The Supreme Court in Infrastructure Leasing & Financial Services Limited Vs. BPL Limited (2015) clarified that under Sections 176 and 177 of the Indian Contract Act, a Pawnee has both collateral and concurrent rights. The Pawnee can bring a suit for debt recovery while retaining the pledged goods as collateral security. This discretion allows the Pawnee to file a suit without first selling the pledged goods.

c. The Corporate Debtor's contention that the Supplementary Agreement overrides the Contract Act is unfounded. The Agreement does not restrict the Operational Creditor from invoking IBC provisions without first selling the pledged property.

d. Issuing a notice to sell the pledged goods does not negate the right to proceed under Section 9 of IBC. The Operational Creditor's actions are consistent with Section 176 of the Contract Act, which allows filing a suit for recovery while retaining the pledged goods. Thus, the petition is maintainable.

II. Whether there is a debt due by the Corporate Debtor to the Operational Creditor and whether the Corporate Debtor has defaulted in discharging the said debt:

a. The Corporate Debtor claimed there was a pre-existing dispute, citing letters disputing the debt amount and a pending case under Section 138 of the Negotiable Instruments Act (NI Act). However, the pendency of a Section 138 case indicates an acknowledgment of debt, not a dispute. Dishonored cheques reflect default, not a dispute.

b. The Corporate Debtor's letters dated 26.10.2016 and 05.10.2018 questioned the debt amount and requested account reconciliation. The Operational Creditor denied receiving these letters. Despite this, an email from the Corporate Debtor dated 28.11.2018 acknowledged a debt of Rs. 4,95,11,476.87, with the principal amount being Rs. 2,37,49,667.33.

c. The Adjudicating Authority must admit the application if the admitted debt exceeds the threshold limit of Rs. 1 Lakh, as per the NCLAT judgment in Mr. Joseph Jayananda Vs. M/s. Navalmar (UK) Limited. The Corporate Debtor's admitted debt exceeds this threshold, and there is no pre-existing dispute.

d. The arbitration clause was not contested. The Supreme Court in Booz Allen and Hamilton ILC Vs. SBI Home Finance Limited held that disputes relating to rights in rem are not arbitrable and must be adjudicated by courts or public tribunals. The NCLT is the appropriate authority to initiate CIRP under Section 9 of IBC.

III. To what result:

The Tribunal concluded that the petition is maintainable and the Corporate Debtor has defaulted in discharging the admitted debt. Therefore, the Tribunal ordered the initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor.

Order:
The Company Petition is admitted, and the CIRP of the Corporate Debtor shall commence immediately. Mr. Koteswara Rao Gutta is appointed as the Interim Resolution Professional (IRP). A moratorium is declared in respect of the Corporate Debtor, and all associated persons must cooperate with the IRP. The Registry will communicate the order to the Operational Creditor and the Corporate Debtor, and the Operational Creditor will send a copy of the order to the IRP for compliance.

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