2021 (5) TMI 646 - Tri - Insolvency and Bankruptcy

Tribunal dismisses claim in insolvency case, highlights importance of financial stability

The Tribunal dismissed the Petitioner's claim in C.P. (IB) No. 17/BB/2021, citing lack of evidence for the alleged debt, absence of proof of services ... 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:- Though the dispute may not be pre-existing, in this case the liability is denied as no services are established to have been provided by the Petitioner for the period September 2018 to February 2019 for which the payments are demanded. From the submissions made by the Corporate Debtor, it is seen that it is a critical supplier to the Defence sector and Indian Space Programme, and is involved with several projects of strategic importance, and is the only private company in India having a licence from the Government of India for undertaking Missile Refurbishment and upgradation. It also exports sophisticated micro-electronic products to various countries. It has a Paid up Capital of ₹ 49.99 crores and revenues of ₹ 11.48 crores for the FY ending 31.03.2020 and has about 65 employees in the Company - it is not the intent behind the IBC to destabilise and subject to the rigours of CIRP, profit making viable going concerns engaged in tasks of national importance and push them into liquidation. It is therefore clear that the Petitioner seeks to use this Tribunal as a mere recovery forum, which is not acceptable, being against the spirit of the Code. It is a settled position of law that the provisions of Code cannot be invoked for recovery of outstanding amount but they can be invoked to initiate CIRP for justified reasons as per the Code. It is clear that a debt which has been denied, is not backed by any evidence, and the Petition is filed for the purpose of recovery against a solvent going concern contributing immensely to the country's economy the Petition deserves to be dismissed. It is certainly not a case where the Corporate Debtor is unable to repay its debts on account of its inability to pay that requires a resolution - Petition dismissed. Issues Involved:1. Minimum amount of default for initiating Corporate Insolvency Resolution Process (CIRP).2. Validity of unstamped consultancy agreement under Karnataka Stamp Act, 1957.3. Existence of debt and evidence of services rendered.4. Use of Insolvency and Bankruptcy Code (IBC) as a recovery forum.5. Impact on a going concern engaged in tasks of national importance.Detailed Analysis:1. Minimum Amount of Default for Initiating CIRP:The Respondent argued that the Ministry of Corporate Affairs, via Notification No. S.O.1205 (E) dated 24.03.2020, amended Section 4 of IBC, 2016, specifying one crore as the minimum amount of default for initiating CIRP. Since the alleged default was Rs. 14,16,000/-, the Petitioner loses its locus standi. However, the Tribunal noted that the amendment applies to defaults committed after the amendment date, whereas the default in this case occurred prior to this date, making the argument inapplicable.2. Validity of Unstamped Consultancy Agreement:The Respondent contended that the consultancy agreement was not duly stamped as per Section 34 of the Karnataka Stamp Act, 1957, and thus inadmissible as evidence. The Tribunal rejected this objection, stating that the Corporate Debtor had accepted the agreement, received services, and made payments under it, thereby validating the agreement despite the lack of stamping.3. Existence of Debt and Evidence of Services Rendered:The Petitioner claimed unpaid consultancy fees amounting to Rs. 14,16,000/- plus interest, supported by a Tax Invoice dated 30.09.2018 for Rs. 2,36,000/-. The Tribunal found that the invoice lacked details and proof of service to the Corporate Debtor. The Tribunal emphasized that while raising invoices might not be mandatory, the Petitioner had a practice of issuing acknowledged invoices for earlier payments. In the absence of such evidence for the period of alleged default, the Tribunal concluded that services were not proven to have been rendered, and thus, the claim lacked substantiation.4. Use of IBC as a Recovery Forum:The Tribunal reiterated that the IBC is not intended to be a substitute for a recovery forum. The Tribunal cited the Hon'ble Supreme Court's decisions in *Mobilox Innovations Private Limited vs. Kirusa Software Private Limited* and *Transmission Corporation of A.P. Ltd. vs. Equipment Conductors and Cables Ltd.*, emphasizing that the existence of undisputed debt is essential for initiating CIRP. The Tribunal found that the Petitioner was attempting to use the IBC for recovery purposes, which is against the spirit of the Code.5. Impact on a Going Concern Engaged in Tasks of National Importance:The Tribunal noted that the Respondent is a critical supplier to the Indian Defence sector and the Indian Space Programme, with significant contributions to national projects. The Tribunal stressed that it is not the intent of the IBC to destabilize profit-making, viable going concerns engaged in tasks of national importance. The Tribunal highlighted the Respondent's financial stability and contributions, concluding that the Petition was not justified for initiating CIRP.Conclusion:The Tribunal dismissed C.P. (IB) No. 17/BB/2021, filed by the Petitioner, on the grounds that the debt was denied, lacked evidence of services rendered, and the Petition was aimed at recovery rather than resolution. The Tribunal emphasized the importance of not destabilizing a solvent, profit-making entity contributing significantly to the national economy. No order as to costs was made.