2020 (2) TMI 1488 - Tri - Insolvency and Bankruptcy

Tribunal Initiates CIRP Against Corporate Debtor for Payment Default

The Tribunal found in favor of the Operational Creditor, initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor under ... Corporate insolvency resolution process - operational debt - pre-existing dispute - doctrine of constructive notice - moratorium - interim resolution professional appointmentPre-existing dispute - operational debt - doctrine of constructive notice - Whether a bona fide pre-existing dispute exists between the Operational Creditor and the Corporate Debtor which would render the Section 9 petition not maintainable - HELD THAT: - The Tribunal examined the pleadings, the notice of dispute dated 05.11.2018 and the documentary record. The Corporate Debtor alleged that payments made by it were for and on behalf of the Operational Creditor to third parties and relied on certain ledger entries and letters. The Tribunal found that those specific contentions were not pleaded in the notice of dispute and that the Corporate Debtor failed to produce any tri-partite agreement or board resolution authorising such transfers. Comparison of the parties' ledgers with bank statements showed RTGS transfers of the disputed amounts to the Operational Creditor on 21.10.2017 and 10.11.2017. In the absence of contemporaneous authorisation or agreement and having regard to the documentary evidence on record, the alleged defence of payment to third parties was held to be an afterthought and characterised as illusionary and moonshine, intended to erase liability. Reliance by the Operational Creditor on the doctrine of constructive notice did not require acceptance of the Corporate Debtor's uncorroborated allegations. On this basis the Tribunal concluded that no bona fide pre-existing dispute was established which would bar admission of the petition under Section 9 of the IBC. [Paras 22, 23, 24]The defence raised by the Corporate Debtor is rejected as not constituting a bona fide pre-existing dispute; the Operational Creditor's claim is held to be prima facie established.Corporate insolvency resolution process - moratorium - interim resolution professional appointment - Reliefs to be granted upon admission of the Section 9 petition including declaration of moratorium and appointment of an Interim Resolution Professional (IRP) - HELD THAT: - Having found default in payment of the operational debt and that the petition was complete, the Tribunal admitted the petition under Section 9(5) of the IBC. Consequentially, the statutory moratorium under Section 14 was declared with the attendant prohibitions against institution or continuation of suits, transfer or disposition of assets, enforcement of security interest and recovery of leased property. The Tribunal appointed the proposed IRP subject to fulfilment of disclosure and disciplinary checks and directed the IRP to act in accordance with the Code. The Operational Creditor was directed to deposit an amount to meet immediate expenses of the IRP, subject to adjustment by the Committee of Creditors. [Paras 25, 26, 27]The petition is admitted; moratorium is declared; Mr. Sumit Bansal is appointed as IRP subject to conditions; Operational Creditor to deposit funds for IRP expenses.Final Conclusion: The Tribunal admitted the Section 9 petition after rejecting the defence as not constituting a bona fide pre-existing dispute, declared the moratorium under Section 14 of the IBC and appointed an Interim Resolution Professional subject to prescribed conditions; the Operational Creditor was directed to deposit funds for immediate IRP expenses. Issues Involved:1. Existence of Operational Debt and Default2. Pre-existing Dispute3. Payments and Ledger Discrepancies4. Authorization of Payments to Third Parties5. Admission of Petition and MoratoriumIssue-wise Detailed Analysis:1. Existence of Operational Debt and Default:The petition was filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016) by M/s. Worldwide Metals Pvt. Ltd. (Operational Creditor) against M/s. J.P. Engineers Pvt. Ltd. (Corporate Debtor) to initiate the Corporate Insolvency Resolution Process (CIRP). The Operational Creditor claimed that the Corporate Debtor had a running account for the purchase of Aluminum Ingots and Wire Rods, with outstanding invoices amounting to Rs. 16,18,18,265. A Demand Notice was sent on 27.10.2018, to which the Corporate Debtor responded on 05.11.2018.2. Pre-existing Dispute:The Corporate Debtor contended that the supplies were made based on oral instructions without written purchase orders and that there were discrepancies in the ledger accounts. The Corporate Debtor claimed that payments were made to third parties on behalf of the Operational Creditor, which nullified the liability. The Tribunal observed that the Corporate Debtor did not make specific averments regarding these payments in its Notice of Dispute dated 05.11.2018.3. Payments and Ledger Discrepancies:The Corporate Debtor argued that the ledger entries provided by the Operational Creditor were incorrect and that payments were made to entities such as Oyster and Iron Private Limited, Simla Holdings, and Olympus Metal Private Limited. The Operational Creditor refuted these claims, stating that the letters annexed by the Corporate Debtor were forged and fabricated. The Tribunal compared the ledgers and bank statements, confirming that payments of Rs. 1,95,34,823 and Rs. 1,95,79,294 were made to the Operational Creditor via RTGS.4. Authorization of Payments to Third Parties:The Corporate Debtor failed to produce any tri-partite agreement authorizing it to make payments to third parties on behalf of the Operational Creditor. The Tribunal emphasized that the assets of the company cannot be transferred without specific agreements or board resolutions. The Tribunal referenced a judgment stating that companies transact business through board resolutions, rejecting any oral agreements as moonshine.5. Admission of Petition and Moratorium:The Tribunal concluded that the dispute raised by the Corporate Debtor was illusionary and intended to defeat the claim of the Operational Creditor. The petition was deemed complete, and the default in payment was established beyond doubt. The Tribunal admitted the petition under Section 9(5) of the IBC and declared a moratorium under Section 14 of the Code, imposing prohibitions on suits, asset transfers, security interest enforcement, and property recovery. Mr. Sumit Bansal was appointed as the Interim Resolution Professional (IRP), and the Operational Creditor was directed to deposit Rs. 2,00,000 with the IRP for immediate expenses.In conclusion, the Tribunal found in favor of the Operational Creditor, initiating the CIRP against the Corporate Debtor and imposing a moratorium as per the provisions of the IBC, 2016.