Tribunal Ends CIRP on Genuine Dispute Grounds; Corporate Debtor to Cover Costs, Resumes Independent Operations.

The Tribunal set aside the impugned order, releasing the Corporate Debtor from the Corporate Insolvency Resolution Process (CIRP) due to the existence of a genuine dispute, as per Section 9 of the Insolvency and Bankruptcy Code (IBC). The Tribunal emphasized that IBC is not a debt recovery mechanism. The Corporate Debtor was directed to bear the CIRP costs incurred by the Interim Resolution Professional (IRP) and recover them from the Operational Creditor. The appeal was allowed, and the Corporate Debtor was permitted to function independently through its Board of Directors, underscoring the necessity for account reconciliation.

---

---

Issues Involved:
1. Existence of Operational Debt
2. Pre-existing Dispute
3. Default and Limitation Period
4. Reconciliation of Accounts
5. Application of Insolvency and Bankruptcy Code (IBC)
6. Role and Actions of Interim Resolution Professional (IRP)

Issue-wise Detailed Analysis:

1. Existence of Operational Debt:
The Adjudicating Authority initiated the Corporate Insolvency Resolution Process (CIRP) based on the existence of operational debt above Rs. One Lac, which was due and defaulted on 30.11.2016. The petition was filed within the limitation period, and there was no pre-existing dispute prior to the notice issued by the Operational Creditor. The defaulted amount was Rs. 1,81,61,422.00 as per invoices dated between April 2016 and March 2018.

2. Pre-existing Dispute:
The Appellant argued a pre-existing dispute, citing an email dated 29.03.2018 from the Corporate Debtor to the Operational Creditor, indicating discrepancies in the ledger and rejection of materials. The Appellant also contested the outstanding amount, pointing out inconsistencies in the amounts mentioned in the impugned order and the demand notice. The Operational Creditor maintained that there was no pre-existing dispute and provided evidence of continuous supply and requests for payment.

3. Default and Limitation Period:
The default occurred on 30.11.2016, and the petition was filed on 11.07.2018, within the limitation period. The Operational Creditor claimed the debt due was more than Rs. 1 lac, which was to be reconciled by the IRP. The Adjudicating Authority noted multiple dates of default and the need for reconciliation of accounts.

4. Reconciliation of Accounts:
The Tribunal observed that the business relationship between the parties had deteriorated since March 2018, and both parties maintained a running account. The Tribunal emphasized the need for reconciliation between the parties to determine the actual amount due, noting multiple dates of default and varying payment terms in purchase orders and invoices.

5. Application of Insolvency and Bankruptcy Code (IBC):
The Tribunal highlighted that the objective of the IBC is not the recovery of money but to resolve insolvency and maximize the value of assets. The existence of a dispute as per Section 9 of the Code requires the rejection of the petition. The Tribunal referenced the Supreme Court's ruling in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd., which stated that IBC is not a substitute for a recovery forum and should not be invoked where there is a real dispute.

6. Role and Actions of Interim Resolution Professional (IRP):
The IRP issued a public announcement and constituted the Committee of Creditors. However, the Tribunal found that the Adjudicating Authority's order did not meet the criteria of undisputed debt due and payable. Consequently, the Tribunal set aside the impugned order, declared the actions of the IRP illegal, and released the Corporate Debtor from the CIRP, allowing it to function independently through its Board of Directors. The Corporate Debtor was directed to bear the CIRP costs incurred by the IRP/RP and recover them from the Operational Creditor.

Conclusion:
The appeal was allowed, the impugned order dated 13.03.2020 was set aside, and the Corporate Debtor was released from the CIRP. The Tribunal emphasized the need for reconciliation of accounts and the proper application of the IBC, highlighting that the Code is not intended for debt recovery but for resolving insolvency.

---