2017 (4) TMI 1156 - Tri - Insolvency and Bankruptcy

Tribunal Admits Creditor's Petition, Imposes Moratorium & Appoints Resolution Professional

The Tribunal admitted the Operational Creditor's petition under sections 8 & 9 of the I&B Code, declaring a moratorium and appointing an interim ... Existence of debt and occurrence of default - dispute in existence - statutory notice under section 8 of the I&B Code - admission of operational creditor petition under sections 8 and 9 of the I&B Code - declaration of moratorium - appointment of interim resolution professionalExistence of debt and occurrence of default - invoices as evidence of operational debt - The corporate debtor had incurred a debt and there was a default within the meaning of the I&B Code. - HELD THAT: - The petition and accompanying documents establish that invoices were raised by the operational creditor for work performed and that payment remained outstanding. The Tribunal found that the materials on record disclose a debt as defined in Section 3(11) and a default within Section 3(12) of the Code. The corporate debtor did not, prior to receipt of the statutory notice, initiate any suit or arbitration disputing the existence of the debt or file proceedings to challenge the claimed liability; accordingly the claim of default is accepted on the basis of the invoices and the documentary record before the Bench. [Paras 4]Debt and default established; the documentary record supports admission on this point.Dispute in existence - reply to notice under section 8 - requirement of pre-existing proceedings - The dispute raised by the corporate debtor in its reply to the section 8 notice did not constitute a 'dispute in existence' at the time of receipt of the notice and therefore did not preclude admission. - HELD THAT: - The Tribunal analysed Section 5(6) and Section 8(2)(a) to determine the scope of 'dispute in existence'. It held that a dispute in existence contemplates a dispute already the subject of court or arbitral proceedings prior to receipt of the section 8 notice. Here, although the corporate debtor, in its reply to the notice, alleged disputes relating to quality, delay, verification of bills and non-issuance of completion certificate, those contentions were raised for the first time after receipt of the statutory notice. Further, invoices were admitted to have been raised. Consequently, the post-notice assertions did not amount to an existing dispute that would defeat the operational creditor's petition. [Paras 6, 7, 8]Dispute raised after receipt of notice did not constitute a 'dispute in existence'; it does not bar admission of the petition.Admission of operational creditor petition under sections 8 and 9 of the I&B Code - declaration of moratorium - appointment of interim resolution professional - The petition was admitted; moratorium was declared and an interim resolution professional was appointed. - HELD THAT: - Having concluded that debt and default existed and that no pre-existing dispute barred the petition, the Tribunal treated the petition as complete and admitted it under the Code. Consequent to admission, the Tribunal declared the statutory moratorium restraining suits, proceedings, transfer or disposition of assets and related actions, ordered public announcement of the corporate insolvency resolution process, and appointed an interim resolution professional whose consent and credentials were noted by the Bench. [Paras 10, 11]Petition admitted; moratorium declared; interim resolution professional appointed; public announcement to be made and CIRP to proceed.Final Conclusion: The Tribunal admitted the operational creditor's petition under sections 8 and 9 of the Insolvency & Bankruptcy Code, having found debt and default on the record and that the dispute asserted by the corporate debtor was not a pre existing dispute; consequent moratorium was declared and an interim resolution professional appointed to conduct the corporate insolvency resolution process. Issues:Operational Creditor petition under section 8 & 9 of I&B Code for default in repayment by Corporate Debtor.Analysis:1. Debt and Default: The Operational Creditor filed a petition against the Corporate Debtor for defaulting on a sum of Rs. 9,10,60,788. The debt arose from an agreement for civil work and construction services, with a substantial amount remaining unpaid. The Corporate Debtor disputed the debt after receiving a statutory notice under the Bankruptcy Code, claiming issues with construction quality, timelines, and outstanding bills. However, the Corporate Debtor did not dispute the debt earlier, and no civil suit was filed before the notice was issued.2. Existence of Dispute: The Operational Creditor argued that the Corporate Debtor's mention of a dispute in response to the notice was insufficient to prove the existence of a dispute. The Corporate Debtor's grievances regarding construction quality and timelines were not raised in any court or arbitration proceeding before receiving the notice. Therefore, the dispute raised by the Corporate Debtor post-notice issuance could not be considered a valid dispute as per the Code.3. Legal Provisions: Sections 5(6) and 8 of the I&B Code were examined to determine the definition of a dispute and the obligations of the operational creditor and corporate debtor in case of default. The Code mandates that a dispute must be raised in a court of law or arbitration tribunal before the receipt of a notice under section 8 to be considered valid.4. Admission and Resolution: The Corporate Debtor admitted issuing invoices related to the debt but raised concerns about construction quality and timelines. The Tribunal found the Corporate Debtor's disputes unsustainable and admitted the petition under sections 8 & 9 of the Code. A moratorium was declared, prohibiting legal actions against the Corporate Debtor and appointing an interim resolution professional to oversee the insolvency resolution process.5. Moratorium and Directions: The Tribunal imposed a moratorium on legal proceedings, asset transfers, and recovery actions against the Corporate Debtor. Essential services to the Corporate Debtor were to continue uninterrupted during the moratorium period. The order of moratorium was to remain in effect until the completion of the insolvency resolution process or liquidation, with a public announcement of the resolution process made immediately.In conclusion, the Tribunal admitted the Operational Creditor's petition, declared a moratorium, and appointed an interim resolution professional to manage the insolvency resolution process in light of the debt default and disputes raised by the Corporate Debtor.