2021 (5) TMI 498 - Tri - Insolvency and Bankruptcy

Partnership firm faces insolvency process after Tribunal ruling on consultancy services dispute

The Tribunal admitted the petition for corporate insolvency resolution process against the Respondent, a partnership firm, due to an alleged default in ... Admissibility of Section 9 application - existence of debt and default - pre-existence of dispute - moratorium under Section 14 - appointment of interim resolution professionalAdmissibility of Section 9 application - existence of debt and default - pre-existence of dispute - Whether the Section 9 petition is maintainable and whether the Operational Creditor has established existence of debt and default, in view of the Corporate Debtor's contentions of void agreement, impossibility of performance and pre-existing dispute. - HELD THAT: - The Tribunal found that the Operational Creditor established the existence of debt and default by the Corporate Debtor on the material placed before it. The Corporate Debtor's contentions that the consultancy agreement was void ab initio, that performance was impossible, and that there were calculation errors or pre-existing disputes were not substantiated by documentary evidence in the reply. Alleged initiation or pendency of civil or criminal proceedings against the Operational Creditor was also not supported by relevant documents. In the absence of proof of a pre-existing dispute or documentary support for the objections raised, the plea resisting the petition was held to be without merit.Section 9 petition admitted and corporate insolvency resolution process initiated against the Corporate Debtor.Moratorium under Section 14 - Whether moratorium should be imposed consequent to admission of the Section 9 petition. - HELD THAT: - On admission of the petition and initiation of CIRP, the Tribunal directed the statutory moratorium to operate forthwith. The scope articulated by the Tribunal prohibits institution or continuation of suits or proceedings and execution of any decree or order against the Corporate Debtor; bars transfer, encumbrance or disposition of the Corporate Debtor's assets; restrains actions to enforce security interests including under SARFAESI; and prevents recovery of property from possession of the Corporate Debtor by owners or lessors. The Tribunal also clarified that supply of essential goods or services shall not be terminated during the moratorium and that specified transactions notified by the Central Government are not covered.Moratorium under Section 14 is imposed with immediate effect until completion of the corporate insolvency resolution process.Appointment of interim resolution professional - Whether an Interim Resolution Professional should be appointed and confirmed to manage the CIRP. - HELD THAT: - The Tribunal confirmed the proposed Interim Resolution Professional to take steps required under the Code, including duties under provisions dealing with possession, management and powers during the CIRP and to file reports as mandated. The order records confirmation of the proposed IRP and directs him to undertake statutory functions and file his report within the period specified by the Bench.Interim Resolution Professional is confirmed and directed to perform statutory duties and file the report within the stipulated time.Final Conclusion: The Tribunal admitted the Section 9 petition, held that debt and default were established and no pre-existing dispute was proved, directed initiation of CIRP with immediate operation of the moratorium under Section 14, and confirmed the Interim Resolution Professional to conduct the resolution process. Issues:1. Application for corporate insolvency resolution process under Section 9 of the Insolvency and Bankruptcy Code 2016.2. Dispute over alleged default in payment for consultancy services provided.3. Respondent's objections to the validity of the consultancy agreement.4. Calculation errors and counterclaims raised by the Respondent.5. Tribunal's decision to admit the petition and initiate CIRP.Issue 1: Application for Corporate Insolvency Resolution ProcessThe Applicant, a partnership firm, sought to initiate the corporate insolvency resolution process against the Respondent for an alleged default in clearing a debt related to consultancy services provided. The Applicant detailed the transactions leading to the application, including consultancy agreements and payments made by the Respondent.Issue 2: Dispute Over Alleged DefaultThe Applicant claimed an amount due from the Respondent for services rendered, with invoices raised and partial payments made. Meetings were held where the Respondent assured payment, but the debt remained unpaid. A statutory demand notice was sent under the IBC, 2016, followed by objections raised by the Respondent regarding the alleged debt.Issue 3: Respondent's Objections to Consultancy AgreementThe Respondent objected to the validity of the consultancy agreement, alleging that the Applicant had not fulfilled its obligations under the agreement. The Respondent claimed that the agreement was void ab initio, citing clauses related to performance and impossibility of services promised by the Applicant.Issue 4: Calculation Errors and CounterclaimsThe Respondent disputed the calculation of the debt amount and raised counterclaims against the Applicant. Allegations were made regarding the Applicant's failure to perform obligations under the consultancy agreement, leading to irreparable loss and injury to the Respondent.Issue 5: Tribunal's DecisionAfter hearing arguments from both parties and examining the documents, the Tribunal found that the Operational Creditor had established the existence of debt and default by the Corporate Debtor. The Tribunal dismissed the Corporate Debtor's objections, noting the lack of documentary evidence to support their claims. Consequently, the Tribunal admitted the petition and initiated the corporate insolvency resolution process against the Respondent.This comprehensive analysis covers the key issues involved in the legal judgment, highlighting the arguments presented by both parties and the Tribunal's decision to admit the petition and impose a moratorium under Section 14 of the Insolvency and Bankruptcy Code 2016.