2022 (8) TMI 420 - AT - Insolvency and Bankruptcy

Initiation of CIRP - solvent debtor - NCLT ejected the Application - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - It is the main case of the Appellant/Operational Creditor that the Adjudicating Authority has wrongly observed that the demand notice under Section 8 of the Code was issued by an advocate and is therefore not valid - HELD THAT - Notice sent by the Advocate on behalf of client is valid notice - Rejection application on this ground is not proper. Rejection of application on the ground the debtor is MSME and a going concern and a viable entity - HELD THAT - Unless the Operational Creditor along with its Application furnishes a copy of the invoices, the bank statements and the financial accounts, the Adjudicating Authority is empowered to reject an incomplete Application - The Preamble of IBC is carefully worded to describe the spirit and objective of the Code to be Reorganisation and Insolvency Resolution , specifically omitting the word Recovery . The Parliament has made a conscious effort to ensure that there is a significant difference between Resolution and Recovery . The Hon ble Supreme Court has time and again observed that the fundamental intent of IBC is maximising the value of assets in the process of Resolution . If IBC is purely used for the purpose of Debt Recovery, particularly when the amounts due are small, and the Company is a solvent entity and is a going concern, the question of Reorganising or Resolution of the Company does not arise. The Hon ble Supreme court in Vidarbha Industries Power Ltd. vs. Axis Bank Ltd. 2022 (7) TMI 581 - SUPREME COURT has observed that even if there is a debt and default , the Adjudicating Authority should use its discretion in admitting/ rejecting an Application. In the instant case, the Adjudicating Authority has rightly rejected the Application on this ground too. Appeal dismissed.

Summary

Issues Involved:
1. Validity of demand notice issued by an advocate.
2. The status of the Corporate Debtor as an MSME and a going concern.
3. Sufficiency of evidence provided by the Operational Creditor.

Issue-wise Detailed Analysis:

1. Validity of Demand Notice Issued by an Advocate:
The primary issue concerns the validity of the demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 (the Code), issued by an advocate on behalf of the Operational Creditor. The Adjudicating Authority dismissed the application, noting that the advocate lacked authority to issue the demand notice. However, the Appellate Tribunal referenced the Supreme Court's ruling in "Macquarie Bank Ltd. vs. Shilpi Cable Technologies Ltd.," which affirmed that an advocate can issue a demand notice on behalf of a client. The Tribunal stated, "an advocate can, on behalf of the Company, issue a demand notice under Section 8 and no such document is required to establish his 'period of association' with the said Company." Therefore, the observation by the Adjudicating Authority on this point was set aside.

2. The Status of the Corporate Debtor as an MSME and a Going Concern:
The Adjudicating Authority also dismissed the application on the grounds that the Corporate Debtor is an MSME, a going concern, and a viable entity. The Tribunal upheld this observation, emphasizing that the Code's objective is not to be a substitute for a recovery forum. The Tribunal cited the Supreme Court's interpretation in "Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited," which clarified that the Code aims at "maximising the value of assets" and not merely at debt recovery. The Tribunal noted that using the insolvency process as a debt recovery tool, especially when the Corporate Debtor is solvent and operational, contradicts the Code's intent.

3. Sufficiency of Evidence Provided by the Operational Creditor:
The Adjudicating Authority found that the Operational Creditor failed to provide necessary documents such as purchase orders, delivery challans, and bank statements to substantiate its claim. The Tribunal agreed with this assessment, stating that under the Code and related regulations, the application must include these documents to be considered complete. The Tribunal referenced Regulation 7 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which mandates the submission of proof of claim, including relevant documents. The Tribunal concluded that the Adjudicating Authority was justified in rejecting the application due to the incomplete submission of required evidence.

Conclusion:
The Tribunal dismissed the appeal, affirming the Adjudicating Authority's decision on multiple grounds. It reiterated that the Code is not intended for debt recovery but for insolvency resolution and reorganization. The Tribunal emphasized that the application was rightly rejected due to the lack of necessary documentation and the improper use of the insolvency process as a recovery mechanism. The appeal was dismissed with no order as to costs.