Tribunal prohibits withholding goods in insolvency process, deems behavior deceptive, orders supply & costs

The Tribunal ruled that withholding goods during the corporate insolvency resolution process due to pre-insolvency debts was impermissible. The Respondent, despite receiving payment, had withheld the supply citing outstanding payments from the pre-insolvency period. The Tribunal found this behavior deceptive and in violation of the law, directing the Respondent to supply the goods to the end user within one week. Additionally, the Respondent was ordered to bear additional costs of Rs. 50,000 to be deposited in the account of the company in liquidation.

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Issues:
- Whether goods can be withheld during the corporate insolvency resolution process due to pre-insolvency period debts.

Analysis:
1. The main issue in this case was whether goods could be withheld during the corporate insolvency resolution process based on debts from the pre-insolvency period. The Liquidator filed an application under section 60(5)(c) read with section 35(1) of the Insolvency and Bankruptcy Code, 2016, seeking directions for the release of goods paid for. The goods in question were related to a Purchase Order dated 16.07.2018 for the Corporate Debtor's project.

2. The Corporate Debtor's insolvency resolution process was initiated on 05.09.2017, leading to the appointment of an Interim Resolution Professional. Subsequently, the decision was made to liquidate the Corporate Debtor, and a Liquidator was appointed. The Liquidator, in accordance with statutory duties under section 35 of the Code, placed a Purchase Order with the Respondent for the supply of goods for the ongoing project.

3. Despite the payment made by the Corporate Debtor for the goods, the Respondent withheld the supply citing outstanding payments from the pre-insolvency period. The Respondent failed to file any claim for these outstanding payments despite a Public Notice inviting claims. The non-supply of goods hampered the project's progress, as confirmed by the Material Dispatch Clearance Certificate issued by project authorities.

4. The Respondent's defense included denying knowledge of the Corporate Debtor's insolvency status at the time of placing the order and arguing lack of privity of contract with the project authorities. However, the Tribunal emphasized the distinction between pre-insolvency and post-insolvency period transactions, highlighting the necessity to pay for goods and services supplied during the insolvency resolution process.

5. The Tribunal found the Respondent's behavior deceptive and in violation of the law, as the goods were unloaded after accepting payment. It was ruled that withholding goods due to pre-insolvency debts was not permissible, and the Respondent was directed to supply the goods to the end user within one week, bearing additional costs of Rs. 50,000 to be deposited in the account of the company in liquidation.

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