2022 (3) TMI 753 - Tri - Insolvency and Bankruptcy

Tribunal dismisses insolvency petition due to settled debt & procedural lapses

The Tribunal rejected the petition for the initiation of the corporate insolvency resolution process against M/s. Nishan Systems Private Limited by M/s. ... Petition under section 9 of the Insolvency and Bankruptcy Code, 2016 - liquidator continuing proceedings on behalf of an insolvent company - requirement of directions from the Adjudicating Authority under section 35 - pre-existing dispute between creditor and corporate debtor - payment already made extinguishing operational debt - maintainability of corporate insolvency resolution process applicationPayment already made extinguishing operational debt - maintainability of corporate insolvency resolution process application - The petition under section 9 was not maintainable because the Corporate Debtor had already paid the claimed operational debt and no outstanding liability existed. - HELD THAT: - The Tribunal examined the pleadings and documentary material and found that payments had been made by the Corporate Debtor in respect of the invoices relied on by the Operational Creditor. The Adjudicating Authority accepted the Corporate Debtor's case that amounts were paid (including bank transfers, TDS adjustments and adjustments towards Marketing Development Funds) and that certain invoices had been paid in advance. On the factual finding that the payment as per the invoices had already been received by the Operational Creditor, the Tribunal held there was no outstanding operational debt to support initiation of corporate insolvency proceedings. Because the debt claimed in the petition was thereby extinguished and the Corporate Debtor had raised disputes in its reply, the petition did not deserve further consideration and was rejected. [Paras 17, 18, 19, 20]Petition rejected as there was no outstanding liability; the claimed operational debt had been paid.Liquidator continuing proceedings on behalf of an insolvent company - requirement of directions from the Adjudicating Authority under section 35 - The Liquidator of the Operational Creditor had continued the present petition without seeking directions or permission from the Adjudicating Authority as envisaged by section 35. - HELD THAT: - The Tribunal observed that after the Operational Creditor company went into liquidation, its Liquidator continued pursuing this section 9 petition but had not applied for or obtained any directions from the Adjudicating Authority authorising continuation of the proceedings. The Tribunal noted that section 35 vests the Liquidator with powers and duties subject to directions of the Adjudicating Authority and that no such directions were on record. While recording this procedural deficiency, the Tribunal proceeded to decide the petition on the merits and rejected it because the debt was found to have been paid; it further observed that had the Liquidator sought permission earlier, the Adjudicating Authority would have considered that aspect at the appropriate stage. [Paras 12, 13, 17]Proceedings were continued by the Liquidator without seeking directions from the Adjudicating Authority; no permission was on record.Final Conclusion: The section 9 petition filed by the Operational Creditor (now in liquidation) was rejected: the Tribunal found the claimed operational debt had already been paid and the Corporate Debtor had raised pre-existing disputes; additionally, the Liquidator had pursued the petition without recorded directions from the Adjudicating Authority under section 35. Issues Involved:1. Initiation of corporate insolvency resolution process.2. Existence of debt and default.3. Payment disputes and adjustments.4. Authority of the liquidator to continue proceedings.5. Pre-existing disputes.Issue-wise Detailed Analysis:1. Initiation of Corporate Insolvency Resolution Process:The petition was filed under Section 9 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of the corporate insolvency resolution process (CIRP) against M/s. Nishan Systems Private Limited (Corporate Debtor) by M/s. Global Infonet Distribution Private Limited (Operational Creditor). The petition was initiated due to the non-payment of Rs. 12,79,433/- for supplied software components.2. Existence of Debt and Default:The Operational Creditor supplied various software components to the Corporate Debtor, issuing several invoices totaling Rs. 12,79,433/-. Despite partial payments, the remaining amount was claimed to be unpaid. The Corporate Debtor, however, argued that all due payments were made, including adjustments for TDS and Marketing Development Funds (MDF).3. Payment Disputes and Adjustments:The Corporate Debtor contended that the entire debt was settled through bank transfers, TDS payments, and adjustments for MDF expenses. They provided bank statements and other documents to substantiate their claims. The Operational Creditor, now represented by a Liquidator, disputed these payments and adjustments, maintaining that the debt remained unpaid.4. Authority of the Liquidator to Continue Proceedings:The Tribunal noted that the Liquidator, appointed for the Operational Creditor, continued the proceedings without seeking permission or directions from the Adjudicating Authority, as required under Section 35 of the Insolvency and Bankruptcy Code. This procedural lapse was a significant factor in the Tribunal's decision.5. Pre-existing Disputes:The Corporate Debtor highlighted pre-existing disputes regarding payments and adjustments, which were not adequately addressed by the Operational Creditor. The Tribunal found that these disputes were genuine and predated the insolvency petition, rendering the claim of the Operational Creditor questionable.Conclusion:After examining the pleadings and hearing both parties, the Tribunal concluded that the payments claimed by the Operational Creditor had already been made. The Tribunal emphasized that the Liquidator's claim of unpaid debt was not credible, especially given the procedural oversight of not seeking appropriate directions before continuing the proceedings. Consequently, the petition was rejected due to lack of merit, acknowledging the pre-existing disputes and the full settlement of the claimed amount by the Corporate Debtor.Order:The Tribunal rejected the petition, stating that the Operational Creditor (Liquidator) could not claim any amount beyond what was initially mentioned, and certified copies of the order were to be issued to all concerned parties upon compliance with requisite formalities.