2019 (8) TMI 218 - AT - Insolvency and Bankruptcy

Foreign Decree not Sufficient for Insolvency: Court Emphasizes Legally Payable Debt Requirement

Peter Johnson John (Employee) Versus M/s KEC International Limited

Peter Johnson John (Employee) Versus M/s KEC International Limited - TMI Issues:1. Rejection of application under Section 9 of the Insolvency and Bankruptcy Code, 2016.2. Dispute regarding debt and maintainability of the application.3. Appellant's claim based on a foreign decree and operational debt.4. Legal justification for seeking initiation of Corporate Insolvency Resolution Process.5. Adjudication of foreign decree and its enforceability in India.6. Pre-existing dispute and powers of Adjudicating Authority.Analysis:1. The judgment revolves around the rejection of an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, by the Adjudicating Authority. The Appellant contested the rejection, arguing that a dispute existed between the parties regarding the debt, which should not have impacted the maintainability of the application.2. The factual background leading to the application involved the Appellant's appointment by the Corporate Debtor and subsequent disputes regarding work assignment, non-payment of salary, and legal actions taken by the Appellant, including filing a suit in the Labour Court of Kinshasa. The Adjudicating Authority declined the application based on the ongoing civil suit in the Bombay High Court regarding the foreign decree and the lack of reciprocity for executing foreign decrees in India.3. The Appellant claimed that the non-payment of salary constituted a default, justifying the invocation of Corporate Insolvency Resolution Process under Section 9. However, the Respondent argued that the alleged debt was not crystallized by a court of competent jurisdiction, especially since the foreign decree was ex-parte and not yet conclusive and enforceable in India.4. The primary issue for determination was whether the Appellant was legally justified in seeking initiation of Corporate Insolvency Resolution Process based on the foreign decree without it being adjudicated in a reciprocating territory. The Court emphasized that the debt must be legally payable for the insolvency process to be invoked, and the foreign decree's enforceability in India was crucial.5. The judgment highlighted that a foreign decree, especially if ex-parte and lacking adjudication under Section 13 of the Civil Procedure Code, cannot be the sole basis for initiating insolvency proceedings. The Court referenced precedents to support the requirement for a legally payable debt before triggering the Corporate Insolvency Resolution Process.6. Ultimately, the Court concluded that the ongoing adjudication of the foreign decree in the Bombay High Court constituted a pre-existing dispute, preventing the Adjudicating Authority from initiating the insolvency process. The Appellant was directed to pursue the legal remedy through the pending suit, emphasizing the importance of a debt being crystallized and legally payable before invoking insolvency proceedings.