2017 (4) TMI 1156 - Tri - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution process - Petition under section 8 transferring encumbering alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; any action to foreclose recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002; the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. 2. That the supply of essential goods or services to the corporate debtor if continuing shall not be terminated or suspended or interrupted during moratorium period. 3. That the provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. 4. That the order of moratorium shall have effect from 6.3.2017 till the completion of the corporate insolvency resolution process or until this Bench approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33 as the case may be. 5. That the public announcement of the corporate insolvency resolution process shall be made immediately as specified under section 13 of the Code. 6. That this Bench hereby appoints CA Hashmukh Bhavanji Dedhia Level 19 Sunshine Tower Senapati Bapat Marg Elphinstone Road Mumbai - 400013 Mah. Email [email protected] Registration No.IBB/IPA-01/2016-17/64 as interim resolution professional to carry the functions as mentioned under Insolvency & Bankruptcy Code.

Summary

Issues:
Operational Creditor petition under section 8 & 9 of I&B Code for default in repayment by Corporate Debtor.

Analysis:

1. Debt and Default: The Operational Creditor filed a petition against the Corporate Debtor for defaulting on a sum of Rs. 9,10,60,788. The debt arose from an agreement for civil work and construction services, with a substantial amount remaining unpaid. The Corporate Debtor disputed the debt after receiving a statutory notice under the Bankruptcy Code, claiming issues with construction quality, timelines, and outstanding bills. However, the Corporate Debtor did not dispute the debt earlier, and no civil suit was filed before the notice was issued.

2. Existence of Dispute: The Operational Creditor argued that the Corporate Debtor's mention of a dispute in response to the notice was insufficient to prove the existence of a dispute. The Corporate Debtor's grievances regarding construction quality and timelines were not raised in any court or arbitration proceeding before receiving the notice. Therefore, the dispute raised by the Corporate Debtor post-notice issuance could not be considered a valid dispute as per the Code.

3. Legal Provisions: Sections 5(6) and 8 of the I&B Code were examined to determine the definition of a dispute and the obligations of the operational creditor and corporate debtor in case of default. The Code mandates that a dispute must be raised in a court of law or arbitration tribunal before the receipt of a notice under section 8 to be considered valid.

4. Admission and Resolution: The Corporate Debtor admitted issuing invoices related to the debt but raised concerns about construction quality and timelines. The Tribunal found the Corporate Debtor's disputes unsustainable and admitted the petition under sections 8 & 9 of the Code. A moratorium was declared, prohibiting legal actions against the Corporate Debtor and appointing an interim resolution professional to oversee the insolvency resolution process.

5. Moratorium and Directions: The Tribunal imposed a moratorium on legal proceedings, asset transfers, and recovery actions against the Corporate Debtor. Essential services to the Corporate Debtor were to continue uninterrupted during the moratorium period. The order of moratorium was to remain in effect until the completion of the insolvency resolution process or liquidation, with a public announcement of the resolution process made immediately.

In conclusion, the Tribunal admitted the Operational Creditor's petition, declared a moratorium, and appointed an interim resolution professional to manage the insolvency resolution process in light of the debt default and disputes raised by the Corporate Debtor.