2021 (11) TMI 797 - Tri - Insolvency and Bankruptcy

Application for Corporate Insolvency Resolution Process Rejected Due to Lack of Proof & Default

The Tribunal rejected the application for Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code due to lack ... 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 Applicant has issued demand notice under Section 8 of the IBC upon the CD on 25.01.2021 during severe Pandemic Period when the notification of Govt. of India/RBI is clear that no proceedings under Section 7, 9 and 10 of I&B Code can be initiated for the default occurs during Covid Pandemic period between 25.03.2020 –to 25.03.2021. One of the necessary preconditions for admitting any Application filed under Section 9 of the I & B Code is that, mere existence of Debt is not enough but a default in payment of that debt must have occurred. A default can be said to be occurred only after expiry of the time period agreed to by the Parties within which the payment is to be made - In this case, no such time or period for making the payments of Goods sold has been specified and the Applicant could not produce any documents to show the Due and Date of Default of Debts. The Application filed under Section 9 of I&B Code is hereby rejected in the absence of submission of proof of Due and Default date of the unpaid dues by the Applicant - Application dismissed. Issues Involved:1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016.2. Existence and validity of debt and default.3. Impact of COVID-19 pandemic and related government notifications on insolvency proceedings.4. Allegations of misuse of IBC provisions by the Operational Creditor.Issue-wise Detailed Analysis:1. Initiation of Corporate Insolvency Resolution Process (CIRP):The application was filed by the Operational Creditor under Section 9 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Operational Creditor claimed an outstanding debt of Rs. 1,51,77,515, which included interest on delayed payments.2. Existence and Validity of Debt and Default:The Operational Creditor supplied coal to the Corporate Debtor and issued 47 invoices between April 2018 and August 2019. The Corporate Debtor acknowledged the supply but contested the debt, arguing there was no mutually agreed time period for payment. The Tribunal noted that the invoices did not specify a due date for payment, and no contract or document was provided to establish a default. The Tribunal emphasized that for a default to occur, there must be an agreed time period within which the payment is to be made, which was absent in this case.3. Impact of COVID-19 Pandemic and Related Government Notifications:The Corporate Debtor highlighted the impact of the COVID-19 pandemic on its operations, which significantly relied on manual labor. The government had issued notifications suspending insolvency proceedings for defaults occurring between March 25, 2020, and March 25, 2021. The Tribunal acknowledged that the demand notice was issued during this suspension period, rendering the notice and subsequent application invalid under the IBC provisions.4. Allegations of Misuse of IBC Provisions:The Corporate Debtor argued that the Operational Creditor was misusing the IBC as a recovery mechanism, which is against the intent of the Code. The Tribunal observed that the mere existence of debt is insufficient for initiating insolvency proceedings; a default must also be established. The absence of an agreed due date for payment and the issuance of the demand notice during the pandemic suspension period supported the Corporate Debtor's contention.Conclusion:The Tribunal rejected the application filed under Section 9 of the IBC due to the absence of proof of due date and default of the unpaid dues. The Tribunal clarified that the rejection was specific to the IBC proceedings, and the Operational Creditor could pursue other legal remedies if eligible. The application was dismissed without costs.