2022 (7) TMI 1247 - Tri - Insolvency and Bankruptcy

Application for Insolvency Proceedings Rejected due to Lack of Evidence and Legal Standing

The Tribunal rejected the application under Section 9 of the Insolvency and Bankruptcy Code to initiate insolvency proceedings against the Corporate ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - service of demand notice - HELD THAT:- The Operational Creditor produced on record copy of demand notice dated nil. He produced postal receipt to show that notice was sent (Annexure-5). However, there is no evidence to show that this demand notice was really delivered to the Corporate Debtor. Only producing postal receipt is not enough to hold that it has been delivered/received by the Corporate Debtor at its correct (registered address). Section-8(i) and 9(i) of the Insolvency and Bankruptcy Code make it clear that there has to be delivery of notice by the Operational Creditor to the Corporate Debtor. Unless Operational Creditor shows proof with the required evidence that in spite of delivery of demand notice under Section 8 of IBC, the Corporate Debtor failed to make payment of operational debt, the Operational Creditor cannot initiate CIRP of the Corporate Debtor. In this case, evidence of delivery of notice is lacking. Application dismissed. Issues:- Application under Section 9 of IBC for initiation of Corporate Insolvency Resolution Process.- Allegation of default in paying operational debt by the Corporate Debtor.- Dispute regarding services provided by the Operational Creditor.- Legal standing of a Proprietary Firm as an Operational Creditor.- Requirement of proof of delivery of demand notice under Section 8 of IBC.Analysis:1. The application was filed under Section 9 of the Insolvency and Bankruptcy Code by the Operational Creditor against the Corporate Debtor for defaulting on an operational debt of Rs. 13,25,000. The claim was based on services provided by the Operational Creditor for loan facilities from a bank, as per the invoice raised against the Corporate Debtor.2. The Corporate Debtor contested the claim, alleging that the Operational Creditor had not disclosed all relevant facts and had no basis for charging fees for services not availed. The defense raised questions about the legitimacy of the claim and accused the Operational Creditor of filing the petition with malicious intent.3. After hearing arguments from both parties, the Tribunal examined the evidence presented. The Operational Creditor asserted that services were indeed rendered to the Corporate Debtor for loan documentation purposes.4. However, it was revealed that the Corporate Debtor did not proceed with the loan from the bank mentioned in the invoice. An email exchange indicated that the proposal had been withdrawn by the Operational Creditor, raising doubts about the actual services provided and accepted by the Corporate Debtor.5. Further scrutiny of the communication between the parties highlighted existing disputes and unresolved issues prior to the demand notice, casting doubt on the nature and completion of the services claimed by the Operational Creditor.6. The Tribunal also deliberated on the legal standing of a Proprietary Firm as an Operational Creditor, noting the omission of such entities from the definition of a person under the Insolvency and Bankruptcy Code. This raised concerns about the eligibility of a Proprietary Firm to initiate insolvency proceedings.7. Additionally, the Tribunal emphasized the importance of proving the delivery of the demand notice under Section 8 of the IBC. Merely producing a postal receipt was deemed insufficient to establish the receipt of the notice by the Corporate Debtor, as required by the Code for initiating Corporate Insolvency Resolution Process.8. Ultimately, due to insufficient and disputed evidence regarding the services provided, the lack of proof of delivery of the demand notice, and concerns over the legal standing of the Operational Creditor as a Proprietary Firm, the Tribunal rejected the application for initiating insolvency proceedings against the Corporate Debtor.9. The Tribunal disposed of the case without costs and directed the Registry to communicate the order to both parties involved in the dispute.