Appellate Tribunal Upholds Dismissal of Appeal Disrupting CIRP; Debtor's Defense Considered Strong

The Appellate Tribunal dismissed the appeal of an Operational Creditor seeking to disrupt the Corporate Insolvency Resolution Process (CIRP) due to a pre-existing dispute. The High Court found the Corporate Debtor's defense to be bona fide and likely to succeed in a Civil Court, directing the Appellant to pursue the matter there. The judgment highlighted that the CIRP process should not be used to settle disputed claims already under legal scrutiny. The Appellant was advised to wait until the moratorium period ended to pursue the suit further.

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Issues:
Operational Creditor wanting to hold up pending CIRP process due to pre-existing dispute.

Analysis:
The judgment involves the case of an Operational Creditor seeking to disrupt the Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016, due to a pre-existing dispute. The Appellant, claiming to have provided services to the Corporate Debtor between 2005-06 & 2008-09, moved the Insolvency Resolution Professional (IRP) with a claim of over Rs. 17 crores. However, the IRP did not accept the claim as it lacked supporting documents. Subsequently, the Appellant approached the Adjudicating Authority, seeking to admit the claim, conduct a forensic audit, and halt the CIRP process. The Adjudicating Authority, after evaluating the case, noted that the Appellant had previously filed a winding-up petition against the Corporate Debtor, which was unsuccessful due to lack of substantiated claims and doubtful business transactions.

The High Court, in its judgment, found the defense raised by the Corporate Debtor to be bona fide and likely to succeed in a Civil Court. The Appellant was directed to pursue the matter in the Civil Court, where a suit had been filed and was still pending. The Appellant argued that an attachment order in the suit indicated a strong case, but the Adjudicating Authority did not find merit in the claim as it lacked substantial documentary evidence. The National Company Law Tribunal (NCLT) also observed discrepancies in the varying claim amounts presented by the Appellant in different legal proceedings.

Under Section 18, the IRP's role is to receive and collate creditor claims, not to adjudicate disputed claims. The IRP's decision not to accept the claim due to insufficient documentation was upheld by the Adjudicating Authority. The judgment emphasizes that the CIRP process should not be used as an adjudication forum for settling disputed claims already under legal scrutiny. The Appellate Tribunal, therefore, dismissed the appeal without admitting it, stating that the Appellant could pursue the suit once the moratorium period ended. No costs were awarded in the judgment.

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