2024 (3) TMI 1294 - AT - Insolvency and Bankruptcy

Operational creditor's Section 9 application upheld despite debtor's claims of contingent payment and pre-existing disputes

SRINIVAS REDDY YADIKI (SHAREHOLDER, PROMOTER AND ERSTWHILE DIRECTOR OF M/s. BEVCON WAYORS PRIVATE LIMITED) Versus M/s. ARDEE HI-TECH PRIVATE LIMITED, MS. SISTLA MANJULA (INTERIM RESOLUTION PROFESSIONAL FOR CORPORATE DEBTOR)

The NCLAT Chennai dismissed an appeal challenging admission of a Section 9 application by an operational creditor. The Corporate Debtor argued that ... Admission of section 9 application - Operational Creditors - debt payable or not - prior existence of the dispute between the parties or the pendency of other proceedings filed elsewhere - effect upon the liability of Corporate Debtor in respect of the unpaid operational debt. Whether based on the documentary evidence which were furnished by the Corporate Debtor whether any debt was payable at all and what is the basis on which it has been claimed to have been paid? - HELD THAT:- A careful scrutiny of the contract agreement dated 03.09.2012 particularly in the context, to its contents provided in clause I.10 and I.40, dealing with the schedule of payment agreed to show that it does not envisage the payment by the Corporate Debtor to the Operational Creditor, would be depending only upon the receipts of amount made from M/s. GVK Coal (M/s. Tokisud Company Pvt. Ltd.). Hence, as far as the purchase order and the contract agreement are concerned, they will have to read only for the contract purposes and not to the liability of payment of the dues to the Operational Creditor. Thus, it could be rightly inferred that prior dues left unpaid by the Corporate Debtor to the Operational Creditor which necessitated invocation of Section 9 of the Insolvency and Bankruptcy Code, 2016, was justified in the eyes of law. Whether there is a prior existence of the dispute between the parties or the pendency of other proceedings filed elsewhere? - whether such will at all have any effect upon the liability of Corporate Debtor in respect of the unpaid operational debt? - HELD THAT:- The said issue has been dealt with by the Hon’ble Apex Court in matters of Mobilox Innovations Private Ltd. vs Kirusa Software Pvt. Ltd. [2017 (9) TMI 1270 - SUPREME COURT], wherein it was ultimately held that the Adjudicating Authority at the stage when it is examining an application under Section 9, will only have confine itself to determine whether there happens to be an operational debt, exceeding amount prescribed under the Code and further the only precaution which is required to be taken is that based on documents on rigour as furnished, the aspects of liability of dues stand established and that if any of the ingredients as aforesaid exists, the application under Section 9 would be sustainable. As per the records, there is nothing on record to otherwise that the Corporate Debtor had any intention to pay the amount due prior to the date the Demand Notice was issued by the Operational Creditor and that there was existence of any dispute with Operational Creditor by the Corporate Debtor prior to the receipt of demand notice served as a mandatory notice in terms of Section 7 of the Insolvency and Bankruptcy Code, 2016. Hence, since despite the demand notice the amount therein was not paid by the Corporate Debtor in all to the Respondent/Operational Creditor. the existence of amount due to be paid becomes an admitted fact, more so in the light of the aforesaid fact that the Corporate Debtor has not raised any dispute as per terms of the purchase order - the Adjudicating Authority while admitting the petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 and dealing with the aspect of moratorium under Section 14 of the Code had not committed any legal error of law and fact in relation to the guidelines for the purpose of arrears or claim raised under Section 9 of the Code. The act of the Adjudicating Authority in declaring the moratorium for the purpose of Section 14 of the Code, in the light of provisions contained under Section 9 dealing with the aspect of remittance of the dues claimed, does not appear to suffer from any apparent error of law or a fact on record which could call for acceptance of the defence taken by the Corporate Debtor or questioning the existence of the dues to be paid and/or admitting the existence of any prior dispute regarding the amount due remaining unpaid. The admission of proceedings by the Adjudicating Authority under Section 9 of the Insolvency and Bankruptcy Code do not suffer from any apparent error of fact and law, calling for any interference while exercising Appellate jurisdiction under Section 61 of the Insolvency and Bankruptcy Code, 2016 - Appeal dismissed. Issues Involved:1. Validity of the Impugned Order dated 19.04.2022 admitting the application u/s 9 of the Insolvency and Bankruptcy Code, 2016.2. Existence and impact of BACK-TO-BACK payment arrangement on the liability of the Corporate Debtor.3. Consideration of prior disputes or pending proceedings affecting the liability of the Corporate Debtor.4. Legal correctness of the Adjudicating Authority's decision to initiate Corporate Insolvency Resolution Process (CIRP) and subsequent liquidation.Summary of Judgment:1. Validity of the Impugned Order:The Appellant challenged the Impugned Order dated 19.04.2022 passed by the NCLT, Hyderabad Bench, which admitted the application u/s 9 of the Insolvency and Bankruptcy Code, 2016, initiating CIRP against the Corporate Debtor. The Appellant, a Shareholder, Promoter, and erstwhile Director, argued that the order was unjustified due to the BACK-TO-BACK payment arrangement with M/s. GVK Coal (Tokisud) Company Pvt. Ltd.2. BACK-TO-BACK Payment Arrangement:The Appellant contended that payments to the Operational Creditor were contingent on receiving payments from M/s. GVK Coal, as per the BACK-TO-BACK payment arrangement. However, the Tribunal found no specific clause in the contract agreement or purchase orders that deferred payments to the Operational Creditor based on receipts from M/s. GVK Coal. The Tribunal concluded that the Corporate Debtor's defense of BACK-TO-BACK payment was not supported by the contractual documents.3. Prior Disputes or Pending Proceedings:The Tribunal referred to the Hon'ble Apex Court's decision in Mobilox Innovations Private Ltd. vs Kirusa Software Pvt. Ltd., which established that the Adjudicating Authority must determine the existence of operational debt, its due and payable status, and any prior disputes. The Tribunal found no evidence of any dispute or intention to pay the amount due before the Demand Notice was issued by the Operational Creditor. The non-release of funds by M/s. GVK Coal was deemed irrelevant to the Corporate Debtor's liability to the Operational Creditor.4. Decision to Initiate CIRP and Liquidation:The NCLT, Hyderabad Bench, admitted the Corporate Debtor into CIRP on 19.04.2022, and after 10 meetings of the Committee of Creditors (COC), the Liquidation was ordered on 22.05.2023. The Tribunal upheld the Adjudicating Authority's decision, stating that the admission of proceedings under Section 9 of the Insolvency and Bankruptcy Code was justified and did not suffer from any apparent error of law or fact. The Tribunal dismissed the Company Appeal, affirming the correctness of the CIRP initiation and subsequent liquidation order.Conclusion:The Tribunal dismissed the appeal, affirming the validity of the Impugned Order and the initiation of CIRP and liquidation proceedings. The defense of BACK-TO-BACK payment arrangement was rejected, and no prior disputes or pending proceedings were found to affect the Corporate Debtor's liability.