Section 9 IBC cannot be used as a recovery tool where part-payments and settlement point to an operational claim dispute.
A Section 9 IBC petition was not admitted where the record showed advance payment and subsequent part-payments by the corporate debtor, indicating that the proceeding was being used to recover a balance operational claim. The tribunal treated the petition as a recovery-oriented dispute rather than a case warranting commencement of CIRP, and preferred settlement over insolvency admission. The corporate debtor was directed to settle the claim within three months, failing which the creditor could pursue appropriate remedies in accordance with law. The application therefore ended without initiation of insolvency proceedings and was disposed of on that basis.
Issues: Whether a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 could be entertained for initiation of corporate insolvency resolution process where the record showed part payments by the corporate debtor and the petition was effectively pursued for recovery of the balance amount.
Analysis: The operational creditor had supplied goods and raised invoices, while the corporate debtor had made an advance payment and further part-payments. The petition was filed after a considerable delay and the order recorded that the proceeding was being used to recover the alleged balance amount. In view of the admitted part-payments and the object of the Code, the matter was treated as one fit for disposal by directing settlement of the claim rather than admission into insolvency proceedings.
Conclusion: The petition was not admitted for CIRP and the corporate debtor was directed to settle the claim within three months, failing which the creditor was left to pursue appropriate remedies in accordance with law.
Final Conclusion: The application ended without commencement of insolvency proceedings and was disposed of by granting the operational creditor a time-bound opportunity to seek payment of the claim.
Ratio Decidendi: A Section 9 proceeding should not be used as a mere recovery mechanism where the dispute is essentially directed to securing payment of an outstanding operational claim and the tribunal considers settlement to be the appropriate course.
TaxTMI 
AI Drafter ✕
TaxTMI 
