Facility services company's CIRP petition against educational institute dismissed for laches and limitation

The case involved a facility services company petitioning to initiate Corporate Insolvency Resolution Process (CIRP) against an educational institute for non-payment totaling Rs. 22,69,778. The respondent failed to respond to demands, leading to deemed admission of debt. Despite concerns about the respondent's financial status, the adjudicating authority found the petition barred by laches and limitation due to the petitioner's delayed action and lack of genuine insolvency concerns. The authority directed the Registrar of Companies to assess compliance status and inform both parties promptly, disposing of the petition accordingly.

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Issues:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under IBC, 2016 against a Corporate Debtor for default in payment.

Analysis:
The petitioner, a facility services company, filed a petition seeking to initiate CIRP against the respondent, an educational institute, for defaulting on payments totaling Rs. 22,69,778, including principal and interest. The respondent had engaged the petitioner for housekeeping services but failed to clear pending invoices from March to December 2017, despite assurances of payment. A demand notice was issued in June 2019, but no response was received, leading to deemed admission of debt by the respondent. The petitioner contended that CIRP should be initiated due to non-payment.

The Deputy General Manager of the petitioner filed an affidavit stating that the respondent had been inactive since 2016, failing to file statutory returns. The respondent's status remained active, but details about its projects were scarce. News articles highlighted issues with the respondent's business commitments, indicating financial troubles. The respondent's lack of response to the demand notice and failure to update project details raised concerns about its financial status.

The adjudicating authority emphasized the importance of the respondent's awareness of CIRP proceedings and the principles of natural justice requiring proper notice. Despite multiple notices, the respondent did not appear or file a reply. The authority cautioned against adjudicating based solely on the petitioner's claims without the respondent's input. The petitioner's delay in initiating legal proceedings and lack of explanation for the delay raised doubts about the petition's timing and intention.

Considering the respondent's non-compliance with statutory requirements and the petitioner's delayed action, the authority concluded that the petition was barred by laches and limitation. The petition seemed aimed at recovering debts rather than genuine insolvency concerns, contradicting the objective of the Insolvency and Bankruptcy Code (IBC). The authority directed the Registrar of Companies (ROC) to examine the respondent's compliance status, taking into account the petitioner's interests, and report back within three months. The petition was disposed of with instructions to inform both parties promptly.

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