2019 (10) TMI 1344 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Debt - existence of debt and dispute or not - privity of contract - HELD THAT - On careful perusal of the documents it is noticed that the foremost objection of the Corporate Debtor regarding Maintainability of this application is found to be in order as there is no legal relationship exists between the parties or any agreement executed in-between. Merely relying on Oral agreement and ordering CIRP will defeat the very purpose of the Code. Given the severity of the consequences that follow on initiation of insolvency proceedings against a company is to be appreciated and understood fully. It is also extremely important to safeguard against the exploitative use of the Code as a debt recovery mechanism and abuse of the process. In the absence of a written agreement supported by documentary evidence we are not inclined to classify the amounts remitted by the operational creditors as Operational Debt under Section 5(21) and as such the applicants does not fall under the definition of Operational Creditors under Section 5(20) of the Code. Thereby the first two parameters are not satisfied - As regard to the existence of a dispute the corporate debtor has outrightly rejected the claims as there is no privity of contract between the parties. We tend to agree with the stand of the Corporate Debtor in the absence of any of agreement between the parties in the instant case. Application dismissed.

Summary

Issues:
- Maintainability of the petition before the Tribunal
- Existence of a legal relationship and agreement between the parties
- Classification of amounts remitted by operational creditors as "Operational Debt"
- Dispute between the parties
- Application of Section 9 of the Insolvency and Bankruptcy Code, 2016

Analysis:

Maintainability of the Petition:
The Tribunal considered the maintainability of the petition before it. The Corporate Debtor raised objections regarding the lack of a legal relationship or agreement between the parties. The Tribunal emphasized the importance of not using the Code as a mere debt recovery mechanism and preventing abuse of the process. It cited the need for a valid legal relationship to initiate insolvency proceedings.

Existence of Legal Relationship and Agreement:
The Corporate Debtor disputed the claims made by the operational creditors, denying any money due or payable. They argued that there was no contractual relationship between them and the operational creditors. The Corporate Debtor contended that the operational creditors were financiers of a licensee, not direct creditors. The Tribunal found merit in the Corporate Debtor's arguments due to the absence of a written agreement and lack of privity of contract.

Classification of Amounts as "Operational Debt" and Dispute:
The operational creditors claimed amounts as default payments under the Insolvency and Bankruptcy Code. However, the Corporate Debtor contested these claims, stating that the payments were related to a separate agreement with a licensee, not the operational creditors. The Tribunal examined the claims under the parameters set by the Supreme Court and found that the amounts did not qualify as "Operational Debt." Additionally, the Corporate Debtor's denial of the claims due to the absence of a contractual relationship led the Tribunal to reject the applications.

Application of Section 9 of the Insolvency and Bankruptcy Code:
The Tribunal applied the provisions of Section 9 of the Insolvency and Bankruptcy Code, 2016, in evaluating the applications. It referenced a Supreme Court judgment to determine the conditions necessary for admitting such applications. The Tribunal concluded that none of the parameters required for accepting the applications were met in this case, leading to the rejection of the petitions.

In conclusion, the Tribunal rejected the applications filed by the operational creditors against the Corporate Debtor, citing the absence of a legal relationship, agreement, or valid operational debt as per the Insolvency and Bankruptcy Code. The decision was based on the lack of evidence supporting the claims and the Corporate Debtor's denial of the debts, emphasizing the need for adherence to legal requirements and prevention of misuse of insolvency proceedings.