2021 (6) TMI 493 - Tri - Insolvency and Bankruptcy

Petition dismissed for misusing Insolvency and Bankruptcy Code. Pre-existing dispute should use proper forum.

The petition was dismissed as it was deemed an attempt to misuse the Insolvency and Bankruptcy Code (IBC) for recovery purposes. The court found that ... 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:- It is a settled position of law that the provisions of Code cannot be invoked for only for recovery, but only for justified reasons as per the Code. The Hon'ble Supreme Court in the case of Mobilox Innovations Private Limited v. Kirusa Software Private Limited [2017 (9) TMI 1270 - SUPREME COURT] has inter alia held that I & B Code, 2016 is not intended to be a substitute to a recovery forum and cannot be used to jeopardise the financial health of an otherwise solvent company by pushing it into insolvency. There is a dispute regarding the quality of services of the Petitioner which need a trial at relevant forum and this forum cannot be misused as a substitute to recovery mechanism - Further on perusal of the Master data available on the MCA Website, it is seen that no charges exist against the Respondent company, and it is active and compliant. The Petitioner has not provided any document to show that the Respondent company is insolvent so as to initiate corporate insolvency resolution process against the company. This petition has been filed with an intention to substitute recovery proceedings with an application under section 9 of the Code, 2016 which defeats the objects of the Code - Petition dismissed. Issues Involved:1. Whether the petition is barred by limitation.2. Whether there is a pre-existing dispute regarding the quality of services.3. Whether the petition is an attempt to misuse the Insolvency and Bankruptcy Code (IBC) as a recovery mechanism.Issue-wise Detailed Analysis:1. Whether the petition is barred by limitation:The Respondent contended that the petition is barred by limitation as the invoices were raised in 2015 and the last payment was made in 2015, making it impermissible for the Operational Creditor to approach the Adjudicating Authority in February 2020. The Petitioner, however, argued that as per Section 60(6) of the IBC, the period of moratorium declared under Section 14 of the Code should be excluded while computing the period of limitation. The moratorium period in this case was from 16.08.2017 to 19.09.2019, thus rendering the petition filed on 16.03.2020 within the limitation period.2. Whether there is a pre-existing dispute regarding the quality of services:The Respondent argued that there was a pre-existing dispute regarding the quality of services provided by the Petitioner, which was communicated through various correspondences, including an email dated 13.03.2015 and an arbitration notice dated 16.04.2018. The Respondent claimed that the work executed by the Petitioner was of poor quality and defective, leading to the engagement of third parties to complete the work. The Petitioner countered by citing the judgment of Mobilox Innovations Private Ltd. Vs. Kirusa Software Private Ltd., stating that the dispute raised by the Respondent was spurious and hypothetical, and thus, not a valid ground to reject the petition.3. Whether the petition is an attempt to misuse the Insolvency and Bankruptcy Code (IBC) as a recovery mechanism:The Tribunal emphasized that the IBC is not intended to be a substitute for a recovery forum and cannot be used to jeopardize the financial health of an otherwise solvent company. The Tribunal referred to the judgment of the Hon'ble Supreme Court in the case of Mobilox Innovations Private Limited v. Kirusa Software Private Limited, which clarified that an undisputed debt is a sine qua non for a petition filed under Section 9 of the IBC. The Tribunal noted that the Respondent had raised a dispute regarding the quality of services, which required a trial at a relevant forum, and not under the IBC.Conclusion:The Tribunal concluded that the petition was filed with an intention to substitute recovery proceedings with an application under Section 9 of the IBC, which defeats the objects of the Code. The Tribunal observed that the Respondent company was active and compliant, with no charges against it, and the Petitioner failed to provide any document to show that the Respondent company was insolvent. Consequently, the petition CP(IB) No. 187/BB/2020 was dismissed with no order as to costs.