2020 (2) TMI 635 - Tri - Insolvency and Bankruptcy

Improper Use of Insolvency Code for Debt Recovery | Tribunal Dismisses Petition |

The Tribunal dismissed the petition due to a pre-existing dispute, highlighting that the Insolvency and Bankruptcy Code is intended for resolution, not ... Maintainability of application - initiation of CIRP - corporate debtor failed to make repayment of its debt - existence of debt and dispute or not - HELD THAT:- It is well established that there is pre-existing dispute. There is no defined agreement entered into between the parties. That apart, the Corporate Debtor is a going concern and there are more than 80 employees engaged with the Corporate Debtor whose livelihood is dependent upon the Corporate Debtor - In view of such serious dispute, which is the matter of trial, cannot become the subject matter of I&B Code when the main object of the I&B Code is resolution and not the recovery. In other way, it can be said 'resolution is rule and liquidation is exception'. The same is evident from the long title of the IB Code. On perusal of the various correspondence as also the Notice of Dispute and the paper publication, it is clear that there is/are pre-existing ongoing dispute(s) between the parties which require further investigation. It is admitted by the Operational Creditor that he has not used the Tata Steel as assured - while recovery bleeds the 'Corporate Debtor' to death, resolution endeavours to keep the 'Corporate Debtor' alive. If fact, the IB Code prohibits and discourages recovery several ways. The petition is dismissed on the ground of pre-existing dispute. Issues Involved:1. Existence of operational debt.2. Payment of the operational debt.3. Existence of a pre-existing dispute.4. Quality of work and materials used.5. Interest on outstanding dues.6. Allegation of false affidavit.7. Application of Insolvency and Bankruptcy Code for recovery purposes.Detailed Analysis:1. Existence of Operational Debt:The Tribunal examined whether there was an 'operational debt' as defined under the Insolvency and Bankruptcy Code, 2016 (IBC), exceeding Rs. 1 lakh. The Operational Creditor supplied fabricated steel cages for the installation and lifting of a statue, raising invoices amounting to Rs. 43,41,740, out of which Rs. 11,41,740 remained unpaid.2. Payment of the Operational Debt:The Tribunal scrutinized whether the debt was due and payable. The Operational Creditor claimed that the Corporate Debtor failed to make payments as per the invoices raised. However, the Corporate Debtor contested the amount, stating that the agreed cost was Rs. 32 lakh including taxes, and alleged that invoices were raised excluding GST.3. Existence of a Pre-existing Dispute:The Tribunal found that there was a pre-existing dispute between the parties regarding the quality of work and materials used. The Corporate Debtor argued that the steel cage provided was of inferior quality, leading to the failure of lifting the statue on the scheduled date, causing a significant loss and damage to their reputation.4. Quality of Work and Materials Used:The Corporate Debtor contended that the Operational Creditor did not use Tata Steel as agreed, resulting in defective work. This was supported by the incident where loud noises emanated from the cage during a trial run, forcing the Corporate Debtor to halt the installation to avoid mishap. The Tribunal noted that this dispute was genuine and substantial.5. Interest on Outstanding Dues:The Tribunal observed that the invoices did not contain any clause for interest on late payments, and the ledger produced by the Operational Creditor did not indicate any interest booked. Thus, the claim for interest by the Operational Creditor was unfounded.6. Allegation of False Affidavit:The Corporate Debtor alleged that the Operational Creditor filed a false affidavit under Section 9(3)(b) of the IBC, claiming no dispute was raised. The Tribunal found that the Corporate Debtor had indeed raised disputes within the stipulated time, contradicting the affidavit.7. Application of Insolvency and Bankruptcy Code for Recovery Purposes:The Tribunal emphasized that the IBC's primary objective is the resolution of insolvency, not the recovery of debts. The Tribunal referred to the Supreme Court's ruling in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., which stated that the existence of a plausible contention requiring further investigation mandates the rejection of the insolvency application. The Tribunal concluded that the IBC should not be used as a tool for recovery, especially when there is a pre-existing dispute.Conclusion:The Tribunal dismissed the petition on the grounds of a pre-existing dispute, emphasizing that the IBC is meant for resolution rather than recovery. The application was found to be an attempt to misuse the IBC for debt recovery, which is contrary to the Code's objectives. Consequently, IA No. 605 of 2019 was also disposed of, and no costs were awarded.