2022 (5) TMI 1480 - Tri - Insolvency and Bankruptcy

Application for Insolvency Process Dismissed Due to Related Party Transactions and Malicious Intent

The Tribunal dismissed the application for initiating the Corporate Insolvency Resolution Process based on an operational debt claim against a real estate ... Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - sham transaction - HELD THAT:- The Application for initiating the CIR Process has been filed by concealing a material fact that the Applicant and the Corporate Debtor were related Parties at the time of transaction basing on which operational debt has been claimed. Since, the said transaction has turned out to be a sham transaction, both the parties are in collusion and the present Application has not been filed for the resolution of Insolvency rather, the parties have attempted to kick start the CIR Process with a malicious intent for a purpose other than the resolution of insolvency of the Corporate Debtor, which is not permissible under the IBC 2016. As per the Code, if any person [as defined under Section 3(23) of IBC] initiates the Insolvency Resolution Process fraudulently or with malicious intent for any purpose other than for the resolution of the insolvency, or liquidation and such an act is punishable under Section 65 (1) of IBC 2016. Hence, before taking any action under Section 65(1) IBC 2016, we think it proper to issue a show cause notice, under Rule 59 of the National Company Law Tribunal Rules 2016, to M/s. Zoom Communications Pvt. Ltd. through its Directors and M/s. Par Excellence Real Estate Pvt. Ltd. through its Directors and to Mr. Gulshan Kumar Jhurani as to why the penalty as stipulated under Section 65(1) of IBC, 2016 shall not be imposed on them. Ld. Registrar NCLT is directed to issue the show cause notice under Section 65(1) of IBC 2016 read with Rule 59 of the National Company Law Tribunal Rules, 2016 by giving them fifteen days' time to explain and submit in writing as to why the penalty as stipulated under Section 65(1) of IBC, 2016 shall not be imposed on them. Application dismissed. Issues:Initiation of Corporate Insolvency Resolution Process under Section 9 of the Insolvency and Bankruptcy Code, 2016 based on an operational debt claim.Analysis:1. The Applicant, a communication company, filed an application seeking to initiate the Corporate Insolvency Resolution Process against the Corporate Debtor, a real estate company, for non-payment of an operational debt related to procuring a loan.2. The Applicant alleged that despite acknowledging the debt and making part-payment, the Corporate Debtor failed to clear the outstanding amount, leading to the issuance of a demand notice under the IBC, 2016.3. The Corporate Debtor objected to the application primarily on the grounds of limitation, claiming no debt was due and payable to the Applicant.4. To overcome the limitation hurdle, the Applicant presented evidence of part-payment, an acknowledgment of debt, and email correspondence from the Corporate Debtor.5. The Tribunal allowed additional documents to be filed by the Applicant to demonstrate the acknowledgment of debt by the Corporate Debtor in its balance sheets for multiple financial years.6. During the examination of the Corporate Debtor's balance sheet, it was revealed that both the Applicant and the Corporate Debtor had a common director, raising concerns about related party transactions.7. The Tribunal discovered that the common director was involved in both companies at the time of the disputed transaction, leading to the conclusion that the transaction was a sham.8. Due to the related party nature of the transaction and the malicious intent behind initiating the insolvency resolution process, the Tribunal dismissed the application and imposed a cost on the Applicant.9. A show cause notice was issued under Section 65(1) of the IBC, 2016 to both companies and the common director, directing them to explain why penalties should not be imposed for fraudulent initiation of the insolvency resolution process.This detailed analysis of the judgment highlights the key legal arguments, evidence presented, findings of the Tribunal, and the ultimate decision regarding the initiation of the Corporate Insolvency Resolution Process.