2020 (3) TMI 919 - Tri - Insolvency and Bankruptcy

Tribunal dismisses Insolvency Petition due to Operational Creditor's misconduct

NN Enterprises Versus Relcon Infra Projects Ltd.

The Tribunal rejected the petition under Section 9 of the Insolvency & Bankruptcy Code, 2016, as the Operational Creditor was found to have suppressed ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - existence of debt and dispute or not - scope of 'suit' and 'proceedings' - HELD THAT:- The provisions of section 69(2) of the Indian Partnership Act, 1932, applies to 'suits' and therefore, cannot apply to 'proceedings' under the IBC. There is a trinity of entities which were dealing with the Corporate Debtor. All the three entities were being managed by the same set of individuals. There were inter se business transactions between the triad of entities controlled by the same set of individuals and the Corporate Debtor. There was a fallout between the partners of the Operational Creditor, and the remaining partner decided to use this position to advantage by issuing a Demand Notice to the Corporate Debtor even though he was fully aware of the assurances given by the other partner of the Operational Creditor to the Corporate Debtor in regard to set off/adjustment of accounts between the three entities on the one hand and the Corporate Debtor on the other. Application rejected. Issues Involved:1. Jurisdiction and maintainability of the petition.2. Existence of debt and default.3. Suppression of material facts by the Operational Creditor.4. Legal implications of issuing a second Demand Notice.Issue-wise Detailed Analysis:1. Jurisdiction and Maintainability of the Petition:The petition was filed under Section 9 of the Insolvency & Bankruptcy Code, 2016 (IBC) by the Operational Creditor seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Corporate Debtor is a public company incorporated under the Companies Act, 1956, and the Tribunal confirmed its jurisdiction to deal with the petition.2. Existence of Debt and Default:The Operational Creditor claimed a debt of Rs. 32,96,390 as principal and Rs. 11,20,772 as interest, citing various invoices raised for the supply of Ready Mix Concrete (RMC). The Corporate Debtor acknowledged the receipt of RMC but contended that the transactions were part of a larger interconnected business relationship involving other entities (Sarneshwar Infra Private Limited and Technotrade Impex India Private Limited) managed by the same individuals. The Corporate Debtor argued that the amounts due from these entities should be set off against the debt claimed by the Operational Creditor.3. Suppression of Material Facts by the Operational Creditor:The Corporate Debtor accused the Operational Creditor of suppressing material facts and not approaching the Tribunal with clean hands. The Tribunal noted that the second Demand Notice issued by the Operational Creditor contained material changes and was not merely a correction of typographical errors. The Tribunal found merit in the Corporate Debtor's contention that the second Demand Notice was issued after considering the Corporate Debtor's reply to the first Demand Notice, indicating a mala fide intent.4. Legal Implications of Issuing a Second Demand Notice:The Tribunal examined the legal implications of issuing a second Demand Notice. The Corporate Debtor argued that the Operational Creditor was not sure about the quantum of the alleged debt, as evidenced by the two different Demand Notices. The Tribunal observed that the second Demand Notice was materially altered and not just a correction of typographical errors. The Tribunal held that admitting the petition under such circumstances would cause grave prejudice to the Corporate Debtor and would amount to gross misuse of the IBC and abuse of the process of law.Judgment:The Tribunal rejected the petition, stating that the Operational Creditor had not approached the Tribunal with clean hands and had materially altered the second Demand Notice. The Tribunal emphasized that the observations made in the order should not be construed as expressing an opinion on the merits and that the petitioner's rights before any other judicial forum would not be prejudiced by the dismissal of the present petition.Communication of Order:The Tribunal directed that a copy of the order be communicated to the parties as per the provisions of Section 9(5)(ii) of the IBC.