2021 (4) TMI 98 - Tri - Insolvency and Bankruptcy

Dismissal of CIRP Petition due to Lack of Debt Evidence: Misuse of IBC Provisions

Sawraj Kumar Versus Expat Projects and Development Private Ltd.

The tribunal dismissed the petition to initiate Corporate Insolvency Resolution Process (CIRP) under Section 7 of the IBC, 2016 against the respondent due ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Creditors or not - existence of debt and default or not - HELD THAT:- The Petitioner issued a Demand Notice dated 17.01.2018 under the provisions of the Code demanding payment in respect of an unpaid operational debt due from Respondent for an amount of ₹ 10,99,39,128/-. In pursuant to the above notice, the Respondent has given a reply dated 03.02.2018 by proposing to settle the issue. Since no settlement has been reached between the Parties, the Petitioner has earlier filed petition before this Adjudicating Authority, under Section 9 of the Code, by seeking to initiate CIRP for the same amount of amount as claimed in the instant Petition. The contention of the Petitioner that the Petitioner is fully entitled to invoke provisions of the Code once again by changing the Section of Code from Section 9 to Section 7 is not tenable and it is liable to be rejected. The Adjudicating Authority has given a clear finding that liberty granted to the Petitioner is to invoke any other remedy available under any Law, do not mean to invoke provisions of the Code again by changing Section. Since the judgment has become final, the Petitioner is estopped from invoking the provisions of the Code for the same set of facts. There is no correlation to various documents filed by the Parties with reference to the debt and default in question, and unless debt and default in question prima facie proved/established, CIRP cannot be initiated. There are no legally valid agreements produced in support of case of Petitioner, only one letter dated 10th April, 2014 started cause of action. And the Petitioner has not produced any legally valid agreement/contract executed between the Parties except by way of mere exchanging letters. Therefore, disputed question of fact and law on letters exchanged cannot be adjudicated in summary proceedings as contemplated under the provisions of Code, to decide question of debt and default. It is also not in dispute that the Petitioner has initiated suit before the Commercial Court, Bangalore, by way of Pre Institution Mediation in PIM No. 244/2019. Report has been issued by Bengaluru District Legal Services Authority, Bengaluru. The Petition is filed with an intention to recover the alleged outstanding amount after receiving part-payment which is against the object of Code - the Petitioner has filed the instant Petition on misconceived facts and law, and also failed to make out any prima facie case with regard to debt and default, so as to initiate CIRP against the Corporate Debtor. Petition dismissed. Issues Involved:1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the IBC, 2016.2. Validity and enforceability of the guarantee agreement.3. Pre-existing disputes and ongoing litigation.4. Classification of the petitioner as a financial creditor.5. Allegations of the petition being filed with malicious intent.Detailed Analysis:1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the IBC, 2016:The petitioner sought to initiate CIRP against the respondent, M/s. Expat Projects & Development Private Ltd., under Section 7 of the IBC, 2016, for a default amounting to Rs. 15,03,11,397/-. The petitioner claimed that the debt arose from a guarantee provided by the respondent for obligations of Expat Bangalore under booking confirmation letters. The tribunal noted that the petitioner had earlier filed a petition under Section 9 of the IBC, which was dismissed on the grounds that the debt could not be categorized as an 'operational debt.' The tribunal held that the petitioner could not re-invoke the provisions of the IBC by merely changing the section from 9 to 7, as it constituted the same set of facts.2. Validity and Enforceability of the Guarantee Agreement:The respondent contended that the guarantee agreement was not valid as it was a unilateral letter and not a tripartite agreement involving the principal debtor, creditor, and guarantor. The tribunal observed that the guarantee was indeed unilateral and lacked legal enforceability as per the Indian Contract Act, 1872. The respondent also argued that the guarantee was obtained through fraud and misrepresentation, and was not registered or sufficiently stamped. The tribunal found that the petitioner failed to produce any legally valid agreement or contract, and the guarantee could not be enforced under the provisions of the IBC.3. Pre-existing Disputes and Ongoing Litigation:The respondent highlighted pre-existing disputes with another company and ongoing litigation, including a suit before the Commercial Court, Bengaluru. The tribunal noted that a pre-institution mediation report indicated the respondent's unwillingness to participate in mediation. The existence of these disputes and ongoing litigation further complicated the matter, making it unsuitable for summary proceedings under the IBC.4. Classification of the Petitioner as a Financial Creditor:The petitioner claimed to be a financial creditor based on the investment made in the project with an option to exit and seek a refund with interest. The tribunal, however, found that the transaction was related to the purchase of flats and not an investment as claimed. The tribunal referred to the earlier order which stated that the petitioner's amount disbursed was against the consideration of time value and money, having a commercial effect of borrowing. However, the tribunal concluded that the petitioner failed to establish a prima facie case of debt and default required to initiate CIRP.5. Allegations of the Petition Being Filed with Malicious Intent:The respondent alleged that the petition was filed with malicious intent to coerce and extort money. The tribunal observed that the petition appeared to be an attempt to recover the alleged outstanding amount after receiving part-payment, which is against the object of the IBC. The tribunal emphasized that the IBC is not a recovery mechanism and the petitioner's actions seemed to misuse the provisions of the code.Conclusion:The tribunal dismissed the petition, stating that the petitioner failed to make out a prima facie case regarding debt and default to initiate CIRP against the corporate debtor. The tribunal reiterated that the petitioner could pursue other legal remedies available under any other law, as granted in the earlier order. The dismissal was without any order as to costs.