Steel supplier wins insolvency proceedings against defaulting company under Section 9 IBC 2016

NCLT Mumbai Bench-IV admitted an application under Section 9 of IBC 2016 for initiating CIRP against the corporate debtor. The operational creditor supplied steel materials but remained unpaid, with outstanding dues exceeding Rs. 1 crore. The corporate debtor appeared but did not contest the application. The tribunal found clear evidence of financial debt default and determined the application was properly filed in correct form. With no objections on record and default established, the CIRP initiation was approved.

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The judgment involves an application filed under Section 9 of the Insolvency & Bankruptcy Code, 2016, by AJS Impex Private Limited, the Operational Creditor, seeking the initiation of the Corporate Insolvency Resolution Process (CIRP) against Nyka Steels Private Limited, the Corporate Debtor. The Tribunal considered various issues and made significant determinations which are summarized below.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal include:

• Whether the application under Section 9 of the Insolvency & Bankruptcy Code, 2016, is maintainable for initiating CIRP against the Corporate Debtor.
• Whether the Corporate Debtor has defaulted in payment of the operational debt claimed by the Operational Creditor.
• Whether the procedural requirements under the Insolvency & Bankruptcy Code have been met by the Operational Creditor.
• Whether there are any grounds for denying the initiation of CIRP against the Corporate Debtor.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of the Application under Section 9 of the IBC

The Tribunal examined whether the application was filed in accordance with the provisions of Section 9 of the Insolvency & Bankruptcy Code, 2016. The relevant legal framework requires the Operational Creditor to demonstrate the occurrence of a default and to provide evidence of the debt owed by the Corporate Debtor. The Tribunal found that the application was complete and filed in the proper form, satisfying the procedural requirements.

Issue 2: Default in Payment of Operational Debt

The Tribunal considered the evidence presented by the Operational Creditor, which included invoices and a ledger indicating the outstanding amount of Rs. 4,87,01,363/-. The Corporate Debtor did not dispute the claims or the amount in default. The Tribunal concluded that the Corporate Debtor had defaulted in payment of the operational debt, as the evidence provided was uncontested and demonstrated a clear default.

Issue 3: Procedural Compliance

The Tribunal reviewed the procedural compliance by the Operational Creditor, including the issuance of a demand notice and the filing of an affidavit under Section 9(3)(b) of the IBC. The Tribunal noted that the Corporate Debtor neither replied to the demand notice nor contested the application, indicating procedural compliance by the Operational Creditor.

Issue 4: Grounds for Denial of CIRP Initiation

The Tribunal examined whether there were any reasons to deny the initiation of CIRP. It found no objections or defenses raised by the Corporate Debtor against the application. The Tribunal determined there was no reason to deny the petition, as the default was established and uncontested.

3. SIGNIFICANT HOLDINGS

The Tribunal made several significant holdings:

• The application under Section 9 of the IBC is admitted, as the Operational Creditor has established the default by the Corporate Debtor.
• A moratorium under Section 14 of the IBC is imposed, prohibiting the institution or continuation of suits against the Corporate Debtor, transferring or disposing of assets, and enforcing security interests during the CIRP.
• The supply of essential goods or services to the Corporate Debtor shall not be terminated during the moratorium period.
• Mr. Hitesh Kothari is appointed as the Interim Resolution Professional to carry out functions as per the IBC.
• The management of the Corporate Debtor shall vest in the IRP during the CIRP period, and the Corporate Debtor's officers must cooperate with the IRP.
• The Operational Creditor is required to deposit Rs. 5,00,000/- with the IRP for expenses related to public notice and claims invitation.
• The Registry is directed to communicate the order to relevant parties and update the Corporate Debtor's Master Data with the Registrar of Companies.

The Tribunal's decision underscores the importance of compliance with procedural requirements under the IBC and the consequences of default by a corporate debtor. The imposition of a moratorium and the appointment of an IRP are critical steps in the CIRP, aimed at resolving the insolvency of the Corporate Debtor.

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