2019 (10) TMI 820 - Tri - Insolvency and Bankruptcy

Application for Corporate Insolvency Rejected: Operational Debt Not Proven

Counfreedise Versus Timex India Group Limited

The Tribunal rejected the application to initiate the Corporate Insolvency Resolution Process against the respondent as the applicant failed to prove the ... Maintainability of application - initiation of CIRP - application is filed under Section 9 of I and B Code - whether the applicant is an Operational Creditor? - HELD THAT:- Admittedly, the applicant is procuring Timex Watches from the respondent from time to time for selling online i.e. the provision of goods is being made by the respondent for which payment is to be made by the applicant. The applicant’s claim is that there is outstanding amount due from the respondent as on 31.03.2017 of ₹ 12,73,235/- including amount of credit notes of ₹ 10,61,623/- and debit note raised by the applicant against the return of watches of ₹ 1,45,977/-. The applicant has not proved that an operational debt is owed to it and that it is an operational creditor. Therefore, the application under Section 9 of the Code filed for initiating CIRP against Timex India Group Limited is rejected - The compliance of the other requirements of Section 9 of the Code are not being further examined. Application rejected. Issues Involved:1. Jurisdiction of the Tribunal.2. Existence of operational debt.3. Status of the applicant as an operational creditor.4. Validity of the demand notice.5. Pre-existing disputes between the parties.6. Relevance of credit and debit notes.7. Compliance with procedural requirements under Section 9 of the Insolvency and Bankruptcy Code, 2016.Issue-wise Detailed Analysis:1. Jurisdiction of the Tribunal:The Tribunal confirmed its jurisdiction based on the registered address of the respondent, as shown in the master data (CIN_L33301DL1988PLC033434) provided in Annexure A-1 of the application.2. Existence of Operational Debt:The applicant claimed an outstanding amount of Rs. 12,73,235/- including credit notes and a debit note for returned watches. However, the Tribunal found that the credit notes would only reduce the purchase price, and the debit note was for returned goods, which did not constitute an operational debt as defined under the Insolvency & Bankruptcy Code, 2016.3. Status of the Applicant as an Operational Creditor:The Tribunal examined whether the applicant qualified as an operational creditor. The applicant was procuring goods from the respondent, but the Tribunal held that the claim related to credit notes and returned goods did not amount to an operational debt. Therefore, the applicant was not considered an operational creditor.4. Validity of the Demand Notice:The respondent challenged the demand notice on the grounds that it was not sent to the registered office. The Tribunal, however, held that the demand notice under Section 8 of the Code can be served at the registered office or corporate office.5. Pre-existing Disputes Between the Parties:The respondent argued that the demand notice and application were counter-blasts to a legitimate civil suit for an injunction filed by the respondent. The Tribunal noted that the respondent had previously restrained the applicant from dealing in Timex watches due to allegations of selling counterfeit products, indicating a pre-existing dispute.6. Relevance of Credit and Debit Notes:The Tribunal scrutinized the credit notes and debit notes. It concluded that credit notes, which reduce the purchase price, and debit notes for returned goods did not constitute claims for the provision of goods or services. Thus, they did not qualify as operational debts.7. Compliance with Procedural Requirements under Section 9:Given that the Tribunal determined the applicant was not an operational creditor and there was no operational debt, it did not further examine the compliance with other procedural requirements under Section 9 of the Code.Conclusion:The Tribunal concluded that the applicant failed to prove the existence of an operational debt and did not qualify as an operational creditor. Consequently, the application under Section 9 of the Insolvency & Bankruptcy Code, 2016, for initiating the Corporate Insolvency Resolution Process (CIRP) against the respondent was rejected. The Tribunal dismissed the application with no order as to costs and directed a copy of the order to be forwarded to the Insolvency and Bankruptcy Board of India (IBBI) for its records.