2023 (2) TMI 44 - AT - Insolvency and Bankruptcy

Initiation of CIRP - pre-existing dispute surrounding the operational debt or not - NCLT rejected the application - Section 9 petition filed before the Adjudicating Authority was a collusive petition or not - HELD THAT - Given the framework of Section 9 of IBC, the remit of this Tribunal is summary in nature and it therefore does not behove this Tribunal to undertake either the comparative examination of the areas of specialisation of Caya and the Corporate Debtor company or to enquire into the veracity of the emails. All that is observed at this stage is that a dispute centering around breach of fiduciary duty by the Appellant in the context of Consultancy Agreement has been raised by the Respondents as their defence against the claim of the Appellant which is evidenced from the material placed on record. It has been contended by the Respondents that the claims by the Appellant is disputed. Further they have denied that any amount is due and payable by the Corporate Debtor to the Appellant. In the light of the submissions and pleadings made by the Learned Counsel for Respondent No.2 and 3 and after seeing the material on record it is satisfying that the dispute raised on behalf of the Corporate Debtor company is not a moonshine dispute or a bluster. The Adjudicating Authority has rightly dismissed the Section 9 application of the Appellant and that the impugned order does not warrant any interference - Appeal dismissed.

Summary

Issues involved:

(i) Whether the Section 9 petition filed before the Adjudicating Authority was a collusive petition.

(ii) Whether in the given facts and circumstances of the present case the Respondents No. 2 and 3 are entitled to defend the interests of Respondent No.1.

(iii) Whether there is any pre-existing dispute surrounding the operational debt.

Detailed Analysis:

Issue (i) & (ii): Collusive Petition and Entitlement of Respondents No. 2 and 3 to Defend Interests

The Appellant alleged that the Corporate Debtor did not respond to the Section 8 notice, leading to the filing of the Section 9 application under the Insolvency and Bankruptcy Code, 2016 (IBC). The Respondents No. 2 and 3, who are majority shareholders of the Corporate Debtor, contended that the petition was collusive. They argued that the Appellant, after resigning as Director, remained in control of the Corporate Debtor's communications and intentionally ensured the demand notice was not served properly. The Appellant sent the notice to an address and individual (KKV) who were no longer associated with the Corporate Debtor, raising questions about the bona fides. The Tribunal observed that the Appellant and KKV acted in collusion to manipulate the proceedings, leading to the dismissal of the Section 9 application as collusive. The Tribunal also held that Respondents No. 2 and 3, being 98.98% shareholders, were entitled to defend the interests of the Corporate Debtor to avoid miscarriage of justice.

Issue (iii): Pre-existing Dispute

The Tribunal examined whether there was a pre-existing dispute between the Appellant and the Corporate Debtor. The Respondents highlighted a Consultancy Agreement dated 04.11.2013, which the Appellant allegedly breached by engaging in competing business activities and making unauthorized withdrawals. The Appellant contended that this agreement was superseded by an Employment Agreement dated 01.08.2014. However, the Tribunal noted that the Employment Agreement was not signed by the Corporate Debtor or its shareholders, questioning its validity. The Respondents provided evidence of the Appellant's involvement in competing businesses and unauthorized withdrawals, establishing a pre-existing dispute. The Tribunal concluded that the dispute was neither moonshine nor a bluster, thus making the Section 9 application untenable.

Conclusion:

The Tribunal upheld the Adjudicating Authority's decision to dismiss the Section 9 application, finding it to be collusive and recognizing the pre-existing dispute. The appeal was dismissed with no costs.