2019 (7) TMI 1578 - Tri - Insolvency and Bankruptcy

Petition to Initiate Insolvency Process Rejected: Lack of Evidence and Agreement

The Tribunal rejected the petition to initiate Corporate Insolvency Resolution Process under Section 9 of the Insolvency and Bankruptcy Code against the ... Corporate Insolvency Resolution Process - Operational Creditor - plausible dispute - letter of engagement - existence of clear-cut liability - demand notice under Section 8 of the Insolvency and Bankruptcy CodeOperational Creditor - plausible dispute - letter of engagement - existence of clear-cut liability - demand notice under Section 8 of the Insolvency and Bankruptcy Code - Maintainability of the petition under Section 9 for initiation of Corporate Insolvency Resolution Process against the Corporate Debtor - HELD THAT: - The Tribunal examined the documentary record and correspondence to determine whether the Operational Creditor had been engaged by the Corporate Debtor and whether a clear, liquidated liability existed despite issuance of the demand notice. The material on record did not disclose any letter of engagement, application form submitted on behalf of the Corporate Debtor, or supporting documents showing the Corporate Debtor had authorized the Operational Creditor to procure loans for it. The sole paper relied upon was the bank's sanction communication, which the Corporate Debtor responded to by stating the terms were unacceptable and that the sanctioned limits were not availed. In these circumstances the Bench found a plausible dispute regarding the existence and quantum of the claimed debt. Where such a plausible dispute exists and there is no demonstrable, undisputed liability, initiation of CIRP cannot be ordered on mere averments even if a demand notice under Section 8 was issued.Petition under Section 9 rejected for want of a clear, undisputed liability and on account of a plausible dispute regarding engagement and payment.Final Conclusion: The Tribunal dismissed the Section 9 petition and rejected initiation of the Corporate Insolvency Resolution Process against the Corporate Debtor due to absence of an engagement agreement and the existence of a plausible dispute as to liability. Issues:Initiating Corporate Insolvency Resolution Process under Section 9 of the Insolvency and Bankruptcy Code.Analysis:The petition was filed under Section 9 of the Insolvency and Bankruptcy Code to initiate the Corporate Insolvency Resolution Process against the respondent, a Corporate Debtor. The Operational Creditor claimed that they had arranged loans for the Corporate Debtor totaling Rs. 25 crores from the State Bank of India, entitling them to a service charge of 1% of the sanctioned limits. However, the Corporate Debtor did not wish to avail the sanctioned limits due to certain unacceptable terms regarding loan repayment and interest rates. The Operational Creditor raised an invoice of Rs. 25 lakhs plus GST, amounting to Rs. 29.50 lakhs, which the Corporate Debtor failed to remit, leading to a demand notice under Section 8 of the Insolvency and Bankruptcy Code.The Corporate Debtor denied engaging the services of the Operational Creditor and claimed that they did not agree to pay a service charge of 1% of the sanctioned amount. They stated that they only received information about professional charges for a valuation report, and the terms of the proposal procured by the Operational Creditor were not acceptable to them due to high processing charges and interest rates. The Corporate Debtor's defense led to a detailed examination by the Tribunal of the documents and correspondence on record.Upon review, the Tribunal found no letter of engagement assigning the Operational Creditor to act on behalf of the Corporate Debtor in liaising with financial institutions for loans. There was no agreement to pay the service charges claimed by the Operational Creditor, and no evidence supported the claim that the Corporate Debtor engaged them for securing financial assistance. The Tribunal noted the absence of essential documents such as the application for financial assistance or any collateral security offers. The terms of the loan sanction did not align with the Corporate Debtor's requirements, and they did not avail the sanctioned limits, leading to a plausible dispute regarding the outstanding amount claimed.Ultimately, the Tribunal concluded that the absence of a clear-cut liability, despite demands, did not warrant the initiation of insolvency proceedings against the Corporate Debtor. Therefore, the petition was rejected, and the file was directed to be consigned to the record room.