Tribunal Rejects CIRP Application due to Section 11 Bar

The Tribunal rejected the application for initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016. Despite the existence of operational debt and default, the application was dismissed due to the prohibition in Section 11 of the IBC, which prevents a corporate debtor undergoing CIRP from initiating another insolvency process. The Tribunal emphasized the necessity for legislative clarification to enable corporate debtors in CIRP to recover their receivables, crucial for their survival and revival. The order was forwarded to the Insolvency and Bankruptcy Board of India (IBBI) for further review and recommendations.

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Issues Involved:
1. Jurisdiction and applicability of Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC).
2. Existence and proof of operational debt and default.
3. Authority and eligibility of the Resolution Professional to file the application.
4. Interpretation of Section 11 of IBC regarding the prohibition on filing applications by corporate debtors undergoing CIRP.
5. Definition and existence of a pre-existing dispute.
6. Compliance with procedural requirements under IBC.

Issue-wise Detailed Analysis:

1. Jurisdiction and Applicability of Section 9 of IBC:
The application was filed under Section 9 of IBC by the Resolution Professional of M/s Mandhana Industries Limited, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against M/s Instyle Exports Private Limited. The Tribunal confirmed its jurisdiction based on the registered office of the corporate debtor being situated in New Delhi.

2. Existence and Proof of Operational Debt and Default:
The applicant claimed an outstanding operational debt of Rs. 24,34,054/- (Rs. 17,91,612/- principal and Rs. 6,42,442/- interest). The debt arose from unpaid invoices for fabric supplies between November 2015 and December 2016. The corporate debtor issued four cheques for the amount, which were dishonored. The Tribunal noted the default in payment of operational debt first became due and payable from the invoice dated 05.12.2015, and the debt was not time-barred.

3. Authority and Eligibility of the Resolution Professional to File the Application:
The corporate debtor contested the authority of the Resolution Professional to file the application, arguing that no specific power is provided under IBC for the Resolution Professional to initiate such proceedings. The applicant cited Sections 17 and 25 of IBC, which empower the Resolution Professional to manage the affairs of the corporate debtor and protect its assets, including receivables. However, the Tribunal observed that the powers under Sections 17 and 25 pertain to representation in existing legal proceedings, not the initiation of new ones.

4. Interpretation of Section 11 of IBC:
The corporate debtor argued that Section 11 of IBC prohibits a corporate debtor undergoing CIRP from initiating another insolvency process. The Tribunal referred to various judgments and legislative intent, noting that Section 11 aims to prevent misuse of the Code and multiple proceedings. The Tribunal observed that the applicant, as a corporate debtor undergoing CIRP, is barred from filing the application under Section 9 of IBC.

5. Definition and Existence of a Pre-existing Dispute:
The corporate debtor claimed a pre-existing dispute regarding the quality of goods supplied. However, the Tribunal found no substantial proof or supportive documents from the corporate debtor to show the existence of such a dispute. The Tribunal concluded that the dispute raised was not genuine and bona fide but a sham defense to avoid the debt.

6. Compliance with Procedural Requirements under IBC:
The applicant complied with procedural requirements, including issuing a demand notice and filing an affidavit affirming non-receipt of the claimed amount. The bank certificate confirmed the non-receipt of payment from the corporate debtor. The applicant also filed the consent form of the Interim Resolution Professional to be appointed by the Tribunal.

Conclusion:
Despite the clear debt and default, the Tribunal rejected the application based on the prohibition under Section 11 of IBC, which bars a corporate debtor undergoing CIRP from initiating another insolvency process. The Tribunal highlighted the need for legislative clarification to allow corporate debtors undergoing CIRP to recover their receivables, essential for their survival and revival. A copy of the order was forwarded to the Insolvency and Bankruptcy Board of India (IBBI) for consideration and recommendation to address the identified anomaly.

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