Tribunal admits CIRP application for non-payment of dues, declares moratorium

The Tribunal admitted the application for initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor due to non-payment of dues despite acknowledgment of debt. The Tribunal found the notice under Section 8 valid, upheld the legal standing of the proprietorship firm, and rejected the application of Section 10A of the Insolvency and Bankruptcy Code, 2016. Consequently, a moratorium was declared, an Interim Resolution Professional appointed, and the Operational Creditor directed to deposit a specified amount. The matter was scheduled for a Progress Report filing, with orders communicated to all concerned parties.

---

---

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP)
2. Default and acknowledgment of debt
3. Validity of notice under Section 8 of the Insolvency and Bankruptcy Code, 2016
4. Legal standing of the proprietorship firm
5. Application of Section 10A of the Insolvency and Bankruptcy Code, 2016

Issue-wise Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP):
The petition was filed under Section 9 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of CIRP against the Corporate Debtor. The Operational Creditor, an interior work contractor, claimed that the Corporate Debtor failed to pay dues amounting to Rs. 1,47,74,691/- for work completed under an agreement. Despite multiple reminders and partial payments totaling Rs. 20,00,000/-, the Corporate Debtor did not settle the remaining amount of Rs. 1,27,74,691/-. The Tribunal found the petition to be complete in all respects and admitted the application for initiating CIRP.

2. Default and acknowledgment of debt:
The Operational Creditor argued that the Corporate Debtor acknowledged the outstanding dues via email and payment certificate dated January 10, 2019. The Corporate Debtor failed to pay the remaining amount despite acknowledging the debt. The Tribunal noted that the Corporate Debtor neither replied to the notice under Section 8 nor filed a reply to the petition, thus failing to present any valid defense. The Tribunal concluded that the debt was due and payable, and the default was established.

3. Validity of notice under Section 8 of the Insolvency and Bankruptcy Code, 2016:
The Corporate Debtor contended that the notice under Section 8 was issued by the proprietorship firm, not the proprietor, and thus was invalid. The Tribunal rejected this argument, stating that the petition and affidavit clearly named Mangilal Suthar as the Operational Creditor, with M. Arts being the trade name. The Tribunal held that a person has the right to address himself as the proprietor of a proprietorship firm, and the notice was validly issued.

4. Legal standing of the proprietorship firm:
The Corporate Debtor argued that the proprietorship firm does not have legal existence and cannot sue. The Tribunal clarified that the petition was filed by Mangilal Suthar, the proprietor, and M. Arts was merely the trade name. The Tribunal found no issue with the petition being filed in this manner and dismissed the Corporate Debtor's contention.

5. Application of Section 10A of the Insolvency and Bankruptcy Code, 2016:
The Corporate Debtor argued that no application for CIRP could be instituted for any default arising on or after March 25, 2020, citing Section 10A. The Tribunal noted that the cause of action arose on multiple dates, including January 10, 2019, March 18, 2020, and July 6, 2020, when the Corporate Debtor acknowledged its liability. The Tribunal concluded that the default was established before the cut-off date of March 25, 2020, and Section 10A did not apply in this case.

Orders:
1. The application for initiating CIRP against the Corporate Debtor was admitted.
2. A moratorium was declared in accordance with Sections 13 and 15 of the Insolvency and Bankruptcy Code, 2016.
3. Mr. Sanjeev Jhunjhunwala was appointed as the Interim Resolution Professional (IRP).
4. The Operational Creditor was directed to deposit Rs. 5,00,000/- with the IRP within three days.
5. The Registry was directed to communicate the order to all concerned parties.

The matter was listed for filing of the Progress Report on August 26, 2022, and certified copies of the order were to be issued upon compliance with requisite formalities.

---