2022 (12) TMI 610 - AT - Insolvency and Bankruptcy

Tribunal Upholds Adjudicating Authority's Decision on IBC Section 9 Application

Mr. Keshav Kantamneni Versus M/s. Kishan Chand Suresh Kumar, Mr. Lingumgunta Venkata Shyam Sundar

The Tribunal upheld the Adjudicating Authority's decision to admit the application under Section 9 of the IBC, 2016, as the operational debt and default ... Initiation of CIRP - Operational Debt - NCLT admitted the application - Recovery Forum for Unpaid Dues - existstence of a ‘Dispute’ - Appellant contends that the amount, claimed to be in default’, is based on the ‘Memorandum of Compromise’ and further that the ‘Claim’ of the ‘Respondent’, based on the unpaid ‘Instalments’, under the ‘Memorandum of Compromise’, is not to be considered as an ‘Operational Debt’. - HELD THAT:- In the present case, the ‘Defaults’, took place in the year 2018 and later in the year 2019, with a promise to effect payments, by October 2019, prior to the ‘Covid-19 Pandemic’, in March 2020. Apart from that, the ‘Appellant’, in the instant ‘Appeal Memorandum’, had tacitly admitted that, till date, a payment of Rs.2,00,00,000/-, was made in favour of the ‘Respondent’ by the ‘Appellant’ and ‘UDL’ as against the ‘Outstanding Sum’ of Rs.5,25,00,000/-, which was admitted by the Respondent. Therefore, the ‘Balance Outstanding Sum’, payable was Rs.3,25,00,000/-. In the instant ‘Appeal Memorandum’, the ‘Appellant’, has expressed a desire to make payment, but the same is not accepted by the ‘Respondent’, because of the fact that, inspite of ample opportunities and time granted, the ‘Appellant’, has not made payment, in respect of ‘Outstanding Principal Amount’ of Rs.2.05 Crores, barring the ‘Outstanding Interest factor’, as opined by this ‘Tribunal’. There is no material brought on record on the side of the ‘Appellant’, to exhibit, the ‘Existence’ of a ‘Preexisting ‘Dispute’, in regard to the ‘Interest’. In fact, the ‘Memorandum of Compromise’, dated 30.04.2019 is a document, filed in support of the Section 9 ‘Application’, before the ‘Adjudicating Authority’, by the ‘1st Respondent / Operational Creditor’, to establish an ‘Acknowledgement of Debt’, by the ‘Appellant / Corporate Debtor’. The act of ‘Admitting’ the Section 9 ‘Application’, by the ‘Adjudicating Authority’, as per Section 9 (5) of the Code, is free from any ‘Legal Infirmities’. Resultantly, the instant ‘Appeal’ fails. Issues Involved:1. Existence and acknowledgment of operational debt.2. Validity of the Memorandum of Compromise.3. Admissibility of the application under Section 9 of the IBC, 2016.4. Pre-existing dispute and its impact on the application.5. Impact of COVID-19 on the payment obligations.6. Legal principles regarding unpaid dues under a settlement agreement.Detailed Analysis:Existence and Acknowledgment of Operational Debt:The Appellant, Ex-Managing Director of the Corporate Debtor, filed an appeal against the order dated 04.10.2021, which admitted an application under Section 9 of the IBC, 2016. The Adjudicating Authority observed that the principal amount due was Rs. 3,25,00,000, with an additional interest of Rs. 46,34,301, totaling Rs. 3,71,34,301. The Corporate Debtor failed to pay despite several requests and reminders, and no dispute regarding the operational debt existed. The Corporate Debtor was set ex-parte after failing to appear, and the default was proved beyond reasonable doubt.Validity of the Memorandum of Compromise:The Appellant contended that the debt was based on a Memorandum of Compromise, which stipulated the agreed debt sum and barred the Respondent from claiming future and past interest at 24%. The Appellant argued that the debt was crystalized based on the Memorandum of Compromise, and the interest component was disputed. The Appellant also argued that the unpaid installments under the Memorandum of Compromise should not be considered operational debt.Admissibility of the Application under Section 9 of the IBC, 2016:The Appellant argued that the IBC, 2016, is not intended to be a substitute for a recovery forum and that the application under Section 9 should not be maintainable for breach of a settlement agreement. The Appellant also contended that the unpaid dues were partially due from another company, Uniply Décor Limited, which was not a party to the proceedings.Pre-existing Dispute and Its Impact on the Application:The Appellant argued that there was a pre-existing dispute regarding the interest claimed by the Respondent. However, the Tribunal found no material evidence of a pre-existing dispute. The Appellant had admitted the liability in the appeal memorandum, stating an outstanding sum of Rs. 2,05,00,000 yet to be paid.Impact of COVID-19 on the Payment Obligations:The Appellant argued that the COVID-19 pandemic prevented them from making payments. However, the Tribunal noted that the defaults occurred in 2018 and 2019, with a promise to effect payments by October 2019, before the pandemic spread in March 2020.Legal Principles Regarding Unpaid Dues Under a Settlement Agreement:The Tribunal referred to various judgments, emphasizing that unpaid dues under a settlement agreement do not fall within the definition of operational debt under the IBC, 2016. However, the Tribunal found that the outstanding principal amount remained unpaid, and the debt was acknowledged by the Appellant.Disposition:The Tribunal concluded that the Appellant had not repudiated the sum due and payable to the Respondent. The operational debt and default were clearly established, and the application under Section 9 was filed before the COVID-19 pandemic. The Tribunal held that the Adjudicating Authority's order admitting the application was free from legal infirmities. Consequently, the appeal was dismissed, and the connected pending IAs were closed.