2019 (3) TMI 1655 - Tri - Insolvency and Bankruptcy

Tribunal initiates Corporate Insolvency Resolution Process, appoints IRP, declares moratorium under IBC.

The Tribunal admitted the petition, initiating the Corporate Insolvency Resolution Process (CIRP). An Interim Resolution Professional (IRP) was appointed, ... Admissibility of petition - initiation of CIRP - Corporate Debtor defaulted in repayment of dues - HELD THAT:- The Operational Creditor has not received the outstanding Debt from the Debtor keeping in view the agreement and the relevant clauses therein. It is clear that there was a lock in period, which had to be complied with by the Corporate Debtor, failure to which would lead to the Corporate Debtor to pay outstanding license fee after adjusting the security deposit. The formalities as prescribed under the Code have been completed by the Operational Creditor - this Petition deserves ‘Admission’ specially when the Debtor is accepting its default. Petition admitted - moratorium declared. Issues Involved:1. Maintainability of the petition before the Tribunal.2. Whether the debt in question qualifies as an 'operational debt' under the Insolvency and Bankruptcy Code (IBC).3. Validity of the Force Majeure claim by the Corporate Debtor.4. Dispute regarding the disconnection of electricity and refusal to take possession of the premises.5. Counterclaim and damages raised by the Corporate Debtor.6. Compliance with procedural requirements under Section 9 of the IBC.Issue-wise Detailed Analysis:1. Maintainability of the petition before the Tribunal:The Corporate Debtor argued that the matter falls under the exclusive jurisdiction of the Small Causes Court as per Section 41 of the Presidency Small Causes Courts Act, 1882. However, the Tribunal rejected this objection, citing the non-obstante provision under Section 238 of the IBC, which has an overriding effect over other legislations. The Tribunal stated that if the legislature provides more than one remedy, the aggrieved person is free to avail any of such remedies.2. Whether the debt in question qualifies as an 'operational debt' under the IBC:The Tribunal concluded that the lease rent or license fee for letting out premises falls under the purview of providing services, making it an 'operational debt' under Section 5(21) of the IBC. The Tribunal referenced the Bankruptcy Law Reforms Committee Report and previous judgments to support this view, affirming that arrears of rent are operational debts.3. Validity of the Force Majeure claim by the Corporate Debtor:The Corporate Debtor claimed termination of the agreement due to a Force Majeure event, citing large tax demands from the Income Tax Department. The Tribunal rejected this claim, stating that Force Majeure must be beyond the control of the parties, such as natural disasters or changes in law, not financial difficulties due to unpaid taxes.4. Dispute regarding the disconnection of electricity and refusal to take possession of the premises:The Corporate Debtor alleged that the Operational Creditor disconnected electricity and refused to take possession of the premises. The Tribunal found this argument to be an afterthought, noting that the Corporate Debtor did not raise objections at the time of the alleged disconnection. The Tribunal deemed the dispute to be a feeble legal argument unsupported by evidence.5. Counterclaim and damages raised by the Corporate Debtor:The Corporate Debtor raised a counterclaim for business losses due to the disconnection of electricity. The Tribunal dismissed this claim, referencing the Bombay High Court's decision in Prime Broking Company (India) Ltd. v. National Securities Clearing Corporation Ltd., which held that a counterclaim for damages is not a valid defense in winding-up proceedings.6. Compliance with procedural requirements under Section 9 of the IBC:The Corporate Debtor argued that the petition lacked a Bank Certificate under Section 9(3)(c) and an affidavit under Section 9(3)(b). The Tribunal found that the Bank Certificate is corroborative, not substantive, and can be dispensed with if other supporting evidence is available. The Tribunal also noted that the affidavit under Section 9(3)(b) is required only if there is no notice of dispute, which was not the case here.Conclusion:The Tribunal admitted the petition, initiating the Corporate Insolvency Resolution Process (CIRP). The Tribunal appointed an Interim Resolution Professional (IRP) and declared a moratorium as per Section 14 of the IBC. The IRP was directed to comply with the provisions of the IBC, including making a public announcement and submitting a compliance report within 30 days. The petition was deemed maintainable, and the debt was classified as an operational debt, with the Corporate Debtor's defenses and counterclaims being rejected.