2020 (3) TMI 1292 - AT - Insolvency and Bankruptcy

Tribunal overturns insolvency proceedings, Corporate Debtor released, Operational Creditor to pay costs.

The Tribunal allowed the appeal, dismissing the application under section 9 of the Insolvency and Bankruptcy Code filed by the Operational Creditor. The ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - service of notice - service of notice - the Corporate Debtor claimed that the Notice period was required to be of two months and the Operational Creditor served only 1 month 5 days period and that Corporate Debtor was not liable to make payments as claimed - HELD THAT:- The record shows that the Operational Creditor had earlier sent a Notice under section 8 of IBC on 26th March, 2018 (Annexure A-8) and the Corporate Debtor had raised similar disputes in Reply dated 24th April, 2018 (Annexure A-9). Various disputes had been raised already till 24th April, 2018. The Operational Creditor gave up the earlier Notice sent under section 8 and on 26th March, 2018, the Operational Creditor sent yet another Notice under section 8 of IBC on 12th November, 2018 (Annexure A-10) and on basis of that Notice filed Application under section 9 before the Adjudicating Authority. Reason stated in the synopsis of that Application for not acting on the earlier Notice, was that the Operational Creditor is a person with limited means. The Application under section 9 of IBC based on Notice under section 8 dated 12th November, 2018 was thus instituted. There is more than sufficient record that there were pre-existing disputes regarding handing over of the charge and the entitlements before the Notice dated 12-11-2018 was sent. The learned Counsel for the Appellant has pointed out Leave Policy (Page - 68 of the Appeal) to say that the employee is not allowed to use balance unutilised leave while serving the Notice period. Disputes were raised even regarding performance incentive. The Appellant himself in the Notice (Annexure A-10) dated 12th November, 2018 stated that the Annual Performance Incentive was due on 10th May, 2017. He having resigned by Notice dated 11th March, 2017 and admittedly stopped attending after 15th April, 2017, has claimed ₹ 6 Lakhs against this head, without showing that the performance was found to be up to the mark. These are service disputes and we cannot enter into settling these disputes. The record shows that there were pre-existing disputes between the parties when Notice (Annexure A-10) was sent and Application under section 9 of IBC was filed. In this view of the matter, the Application under section 9 should not have been admitted as the disputes are service disputes which do not appear to be mere bluster. The Application under section 9 of IBC filed by Respondent No. 1 - Operational Creditor before the Adjudicating Authority is dismissed. Issues Involved:1. Pre-existing dispute.2. Validity of the Operational Creditor's claims.3. Authority of the Appellant to file the appeal.4. Procedural appropriateness of the Adjudicating Authority's order.Issue-wise Detailed Analysis:1. Pre-existing Dispute:The Appellant argued that there was a pre-existing dispute between the Operational Creditor and the Corporate Debtor, which was not adequately considered by the Adjudicating Authority. The Operational Creditor had resigned before completing the required 60-day notice period and there were unresolved issues regarding the handover of responsibilities. The Adjudicating Authority failed to discuss these disputes in detail and simply admitted the application under section 9 of the Insolvency and Bankruptcy Code (IBC), branding the defense as 'spurious' without proper examination. The Tribunal found that there were indeed pre-existing disputes related to the resignation and handover process, which should have precluded the admission of the application under section 9 of the IBC.2. Validity of the Operational Creditor's Claims:The Operational Creditor claimed dues amounting to Rs. 9,05,000/- including gross salary for March and April 2017, annual performance incentive, and liquidated damages. The Corporate Debtor contended that the Operational Creditor did not serve the full notice period and failed to fulfill certain conditions, such as obtaining NOCs from distributors and clearing pending tasks. The Tribunal noted that the Operational Creditor was aware of these conditions and had not complied with them, leading to disputes over the claimed dues. The Tribunal concluded that these were service disputes that could not be settled under the IBC.3. Authority of the Appellant to File the Appeal:The Operational Creditor questioned the Appellant's authority to file the appeal, arguing that the authority was granted after the application under section 9 was admitted. The Tribunal observed that the brief order passed on 10th October 2019 did not appoint an Interim Resolution Professional (IRP) or issue directions, and the reasoned judgment was uploaded only on 18th October 2019. Therefore, the suspended Board of Directors had the right to challenge the order of admission and could authorize the Appellant to represent them in the appeal.4. Procedural Appropriateness of the Adjudicating Authority's Order:The Tribunal criticized the Adjudicating Authority for passing a cryptic order on 10th October 2019, admitting the petition without detailing the judgment. The Tribunal emphasized that admission of an application under sections 7, 9, or 10 of the IBC entails serious consequences and should not be done without a reasoned order. The Tribunal found that the Adjudicating Authority's failure to provide a detailed judgment at the time of admission was inappropriate and contributed to the procedural irregularities in the case.Conclusion:The Tribunal allowed the appeal, dismissing the application under section 9 of the IBC filed by the Operational Creditor. The impugned order was quashed, and actions taken by the IRP/RP were set aside. The Corporate Debtor was released from the insolvency proceedings and allowed to function independently through its Board of Directors. The IRP/RP was directed to hand back the records and management to the Board of Directors, and the Adjudicating Authority was instructed to direct the Operational Creditor to pay the CIRP costs and fees. The appeal was disposed of with no costs.