Tribunal dismisses Section 9 application under Insolvency and Bankruptcy Code due to collusion and pre-existing dispute

The Tribunal upheld the dismissal of the Section 9 application under the Insolvency and Bankruptcy Code, 2016, due to collusion between the Appellant and an individual associated with the Corporate Debtor. The Tribunal also recognized a pre-existing dispute between the parties, rendering the application untenable. Respondents No. 2 and 3, majority shareholders of the Corporate Debtor, were deemed entitled to defend the company's interests. The appeal was dismissed without costs to the Appellant.

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Issues involved:

(i) Whether the Section 9 petition filed before the Adjudicating Authority was a collusive petition.

(ii) Whether in the given facts and circumstances of the present case the Respondents No. 2 and 3 are entitled to defend the interests of Respondent No.1.

(iii) Whether there is any pre-existing dispute surrounding the operational debt.

Detailed Analysis:

Issue (i) & (ii): Collusive Petition and Entitlement of Respondents No. 2 and 3 to Defend Interests

The Appellant alleged that the Corporate Debtor did not respond to the Section 8 notice, leading to the filing of the Section 9 application under the Insolvency and Bankruptcy Code, 2016 (IBC). The Respondents No. 2 and 3, who are majority shareholders of the Corporate Debtor, contended that the petition was collusive. They argued that the Appellant, after resigning as Director, remained in control of the Corporate Debtor's communications and intentionally ensured the demand notice was not served properly. The Appellant sent the notice to an address and individual (KKV) who were no longer associated with the Corporate Debtor, raising questions about the bona fides. The Tribunal observed that the Appellant and KKV acted in collusion to manipulate the proceedings, leading to the dismissal of the Section 9 application as collusive. The Tribunal also held that Respondents No. 2 and 3, being 98.98% shareholders, were entitled to defend the interests of the Corporate Debtor to avoid miscarriage of justice.

Issue (iii): Pre-existing Dispute

The Tribunal examined whether there was a pre-existing dispute between the Appellant and the Corporate Debtor. The Respondents highlighted a Consultancy Agreement dated 04.11.2013, which the Appellant allegedly breached by engaging in competing business activities and making unauthorized withdrawals. The Appellant contended that this agreement was superseded by an Employment Agreement dated 01.08.2014. However, the Tribunal noted that the Employment Agreement was not signed by the Corporate Debtor or its shareholders, questioning its validity. The Respondents provided evidence of the Appellant's involvement in competing businesses and unauthorized withdrawals, establishing a pre-existing dispute. The Tribunal concluded that the dispute was neither moonshine nor a bluster, thus making the Section 9 application untenable.

Conclusion:

The Tribunal upheld the Adjudicating Authority's decision to dismiss the Section 9 application, finding it to be collusive and recognizing the pre-existing dispute. The appeal was dismissed with no costs.

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