2022 (7) TMI 614 - 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 - HELD THAT - The Corporate Debtor has neither sent any reply to the notice sent by the Operational Creditor under section 8 nor has sent any reply even to the corrigendum letter dated 13/01/2021 whatever defence it had, had to be stated in the reply to the notice or corrigendum notice, which were duly received by it. Even, on receipt of the notice from this Adjudicating Authority, the Corporate Debtor has not cared even to file its reply to the petition. The contention of the Corporate Debtor that the petition has been filed by the proprietorship concern or the notice has been sent on behalf of the proprietorship concern is misplaced and cannot be accepted. The petition and the affidavit clearly named Mangilal Suthar as the Operational Creditor and the next line is part of his address i.e. proprietor of M. Arts. M.Arts is only the trade name /address of the Operational Creditor and there is no harm if a person files a petition in his own name and addresses himself to be proprietor of his trade name. After all a person has a right to address himself as the proprietor of a proprietorship firm. The contention of the Corporate Debtor is misplaced and cannot be accepted - The Corporate Debtor had infact affirmed the outstanding due vide email and payments certificate dated January 10, 2019. Once an acknowledgment is made for a job having been satisfactorily done, the amount becomes due to the vendor/ the Operational Creditor. The Corporate Debtor in this matter cannot escape the liability simply by beating about amount the bush and taking refuge under one or other clause of the agreement or seeking refuge under any notification that a default has taken place during the period, for which no petition could be filed in the present matter, the facts are quite different. If the Corporate Debtor had any valid defence, it could have been stated so in its reply to notice under section 8 or in reply to even the corrigendum issued by the Operational Creditor, and even if it could not be done, it could have filed its reply to the petition. Even that has not been done in spite of the opportunities given to the Corporate Debtor. At the stage of arguments only, the Corporate Debtor is trying to escape its liability and make odd types of arguments, which cannot be accepted. The petition is otherwise complete in all respects - it is satisfied that the Operational Creditor has proved the outstanding operational debt, and the default in making payment thereof and that this petition deserves to be admitted. Petition admitted - moratorium declared.

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP)
2. Default and acknowledgment of debt
3. Validity of notice under Section 8 of the Insolvency and Bankruptcy Code, 2016
4. Legal standing of the proprietorship firm
5. Application of Section 10A of the Insolvency and Bankruptcy Code, 2016

Issue-wise Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP):
The petition was filed under Section 9 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of CIRP against the Corporate Debtor. The Operational Creditor, an interior work contractor, claimed that the Corporate Debtor failed to pay dues amounting to Rs. 1,47,74,691/- for work completed under an agreement. Despite multiple reminders and partial payments totaling Rs. 20,00,000/-, the Corporate Debtor did not settle the remaining amount of Rs. 1,27,74,691/-. The Tribunal found the petition to be complete in all respects and admitted the application for initiating CIRP.

2. Default and acknowledgment of debt:
The Operational Creditor argued that the Corporate Debtor acknowledged the outstanding dues via email and payment certificate dated January 10, 2019. The Corporate Debtor failed to pay the remaining amount despite acknowledging the debt. The Tribunal noted that the Corporate Debtor neither replied to the notice under Section 8 nor filed a reply to the petition, thus failing to present any valid defense. The Tribunal concluded that the debt was due and payable, and the default was established.

3. Validity of notice under Section 8 of the Insolvency and Bankruptcy Code, 2016:
The Corporate Debtor contended that the notice under Section 8 was issued by the proprietorship firm, not the proprietor, and thus was invalid. The Tribunal rejected this argument, stating that the petition and affidavit clearly named Mangilal Suthar as the Operational Creditor, with M. Arts being the trade name. The Tribunal held that a person has the right to address himself as the proprietor of a proprietorship firm, and the notice was validly issued.

4. Legal standing of the proprietorship firm:
The Corporate Debtor argued that the proprietorship firm does not have legal existence and cannot sue. The Tribunal clarified that the petition was filed by Mangilal Suthar, the proprietor, and M. Arts was merely the trade name. The Tribunal found no issue with the petition being filed in this manner and dismissed the Corporate Debtor's contention.

5. Application of Section 10A of the Insolvency and Bankruptcy Code, 2016:
The Corporate Debtor argued that no application for CIRP could be instituted for any default arising on or after March 25, 2020, citing Section 10A. The Tribunal noted that the cause of action arose on multiple dates, including January 10, 2019, March 18, 2020, and July 6, 2020, when the Corporate Debtor acknowledged its liability. The Tribunal concluded that the default was established before the cut-off date of March 25, 2020, and Section 10A did not apply in this case.

Orders:
1. The application for initiating CIRP against the Corporate Debtor was admitted.
2. A moratorium was declared in accordance with Sections 13 and 15 of the Insolvency and Bankruptcy Code, 2016.
3. Mr. Sanjeev Jhunjhunwala was appointed as the Interim Resolution Professional (IRP).
4. The Operational Creditor was directed to deposit Rs. 5,00,000/- with the IRP within three days.
5. The Registry was directed to communicate the order to all concerned parties.

The matter was listed for filing of the Progress Report on August 26, 2022, and certified copies of the order were to be issued upon compliance with requisite formalities.

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