2021 (5) TMI 577 - Tri - Insolvency and Bankruptcy

Petition dismissed under Insolvency and Bankruptcy Code Section 9 for financially stable debtor

The Tribunal dismissed the petition under Section 9 of the Insolvency and Bankruptcy Code, emphasizing that the IBC is not meant for debt recovery in ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - HELD THAT:- The Petitioner has to make a case that there is a clear and undisputed debt, a default and also that the Respondent is insolvent and has lost its ability to pay its debts, the proceedings become mere recovery proceedings which is not intended by the legislature in introducing the I & B Code, 2016. From the facts of the case it is seen that the Email dated 08.09.2018 issued by the Respondent to the Petitioner categorically pointing out that the credit note of 15% issued by Petitioner in response to the mail dated 21.03.2018 by Respondent pointing out quality issues of the materials supplied, was not acceptable as the Respondent incurred huge losses - Part payments having been made to the Petitioner, and the withholding of payments are clearly not on account of the Respondent's inability to pay but because of the disputes as seen from the email dated 08.09.2018 which appear to be bonafide, regarding the materials supplied. It is not the object of the Code to push profit making and viable units into the rigours of insolvency resolution especially when the objective in the instant case is only recovery of disputed debt. This petition has been filed to recover disputed debt, which is not the object of the Code, treating this AA as a debt recovery forum. An undisputed debt is a sine qua non for an application filed u/s. 9 of the Code. Allowing such a petition against a profit-making viable unit would defeat the purpose of the Code - Petition dismissed. Issues Involved:1. Existence of operational debt and default.2. Dispute regarding the quality of supplied goods.3. Financial condition of the Corporate Debtor.4. Appropriateness of using IBC proceedings for debt recovery.Issue-wise Detailed Analysis:1. Existence of Operational Debt and Default:The Petitioner, M/s. Chryso India Pvt. Ltd., filed a petition under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016, seeking to initiate Corporate Insolvency Resolution Process (CIRP) against M/s. Sri Chowdeshwari Concrete India Pvt. Ltd. for an alleged default of Rs. 70,33,907/-. This amount includes Rs. 24,51,238/- as interest at 24% p.a. on the principal amount of Rs. 45,82,669/-. The Petitioner claimed that the Corporate Debtor had issued 12 Purchase Orders and accepted the products without any disputes regarding their quality or quantity. Only a part payment of Rs. 3,74,910/- was made, leaving Rs. 45,82,669/- unpaid. The Petitioner issued a Demand Notice on 14th March 2019, which was not complied with by the Corporate Debtor.2. Dispute Regarding the Quality of Supplied Goods:The Corporate Debtor opposed the petition, arguing that it is a profit-making company with no admitted debt or liability. It contended that it had already paid Rs. 1,43,25,668/- towards undisputed invoices and withheld Rs. 27,13,021/- due to unresolved disputes over the quality of the products supplied. The Corporate Debtor claimed that the Petitioner had supplied sub-standard admixtures, leading to additional costs and withheld payments from its clients. The Corporate Debtor also disputed certain Purchase Orders and claimed that the Petitioner had fabricated them.3. Financial Condition of the Corporate Debtor:The Tribunal examined the financial statements of the Corporate Debtor for the years 2017-18, 2018-19, and 2019-20. It found that the Corporate Debtor was in good financial condition, with Reserves and Surplus of Rs. 93,47,251/-, tangible assets of Rs. 7,38,64,654/-, and a net worth of Rs. 98,45,251/- in 2019-20. The company generated Rs. 61,91,22,172/- in revenue and made a profit of Rs. 78,04,144/-. The Tribunal noted that part payments had been made to the Petitioner and that the withholding of payments was due to genuine disputes over the quality of the supplied materials.4. Appropriateness of Using IBC Proceedings for Debt Recovery:The Tribunal emphasized that the IBC is not intended to be a substitute for a debt recovery forum and should not be used to jeopardize the financial health of a solvent company. It referred to the Supreme Court's judgments in Mobilox Innovations Private Limited v. Kirusa Software Private Limited and K. Kishan v. Vijay Nirman Company Private Limited, which clarified that the IBC should not be used prematurely or for extraneous considerations. The Tribunal concluded that the petition was filed to recover a disputed debt and not to resolve insolvency, which is not the objective of the IBC.Conclusion:The Tribunal dismissed the petition, stating that an undisputed debt is a sine qua non for an application under Section 9 of the IBC. It held that allowing the petition against a profit-making viable unit would defeat the purpose of the IBC. Hence, C.P. (IB) No. 50/BB/2020 was dismissed with no order as to costs.