2023 (8) TMI 191 - AT - Insolvency and Bankruptcy

Initiation of CIRP - NCLT rejected the application - Pre-existing dispute - Maintainability of application u/s 9 of IBC - application was dismissed on the ground that the Application was filed solely with an intention to recover the outstanding amount - HELD THAT - From the letter addressed by the Corporate Debtor to the Appellant / Operational Creditor, it is clear that the accounts were confirmed showing an amount of US 50,200. The contention of the Learned Counsel for the Respondent that this amount is not shown as due and payable in their financials, pales into insignificance, taking into consideration that this letter has been signed by the Authorised Signatory of the Corporate Debtor and it is clearly stated that the said amounts have been examined by their Statutory Auditors and to confirm the said amount. Further, this Tribunal is of the considered view that having admitted that this amount is due and payable and having agreed to pay the said amount in two tranches, a sum of 20,000 by the end of May 2021 and the entire balance by the end of July 2021, the Corporate Debtor cannot now turn around and say that there was a dispute and that the amounts are not due and payable. Keeping in view the facts of the attendant case on hand, this Tribunal is of the considered view that the Judgment of ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED VERSUS UNIWORTH TEXTILES LIMITED 2023 (7) TMI 484 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI is not applicable to the facts of this case. Specifically, since there was a clear acknowledgement of payment of the amounts in two tranches within specific time periods. It is settled law that what has to be seen is whether a dispute raised is spurious or genuine. Keeping in view the documentary evidence on record, this Tribunal is satisfied that the dispute raised is a spurious one specifically having regard to the admission of liability on 31/05/2019. The Adjudicating Authority has erred in observing that Corporate Insolvency Resolution Process cannot be initiated against the solvent company in a pandemic situation and that it is a recovery proceeding. To reiterate, the debt was due and payable since May 2018 and therefore Section 10A is not applicable to the facts of this case. The matter is remanded to the Adjudicating Authority for initiation of Company Insolvency Resolution Process against the Corporate Debtor Company in accordance with law - appeal allowed.

Summary

Issues:
The challenge in this Company Appeal is to the Impugned Order dated 09/04/2021 passed in CP(IB) No. 178/BB/2020, where the Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was dismissed by the Adjudicating Authority.

Issue 1:
The Appellant contended that the Respondent owed an outstanding amount for supplied cables, supported by invoices and correspondence. The Respondent failed to respond to a demand notice, leading to the Section 9 Application. The Appellant argued that Section 10A does not apply as the default period predates its enactment.

Issue 2:
The Respondent claimed to have made regular payments and proposed a settlement for the outstanding dues. Disputes arose over defective products and payment terms, with the Respondent asserting willingness to settle the dues in tranches. The Respondent highlighted the need for RBI approval for imports made over 6 months earlier.

Issue 3:
The Respondent presented evidence of quality disputes dating back to 2018, indicating prior issues with the goods supplied. The Respondent emphasized that the accounts did not reflect the amount claimed by the Appellant, citing a previous judgment to argue against the initiation of CIRP based solely on a balance sheet entry.

Judgment:
The Tribunal found the dispute raised by the Respondent to be spurious, given the admission of liability in a letter dated 31/05/2019. It disagreed with the Adjudicating Authority's view that CIRP cannot be initiated against a solvent company during a pandemic, as the debt was due since 2018. The Tribunal set aside the Adjudicating Authority's order, remanding the matter for the initiation of Company Insolvency Resolution Process against the Corporate Debtor.

Conclusion:
The Tribunal allowed the Company Appeal, directing both parties to appear before the Adjudicating Authority for further proceedings. No costs were awarded, and any pending applications were closed.