2021 (5) TMI 616 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - HELD THAT - It is not in dispute that the Respondent paid principal amount and only payment of interest is stated to be delayed in accordance with the Terms and Conditions of Sale. It is not known whether any prior purchase agreement was executed between the parties prior to supply of goods in question. The Respondent has also denied receipt of any statutory demand notice as required under the provisions of Code. Moreover the instant Petition is alleged to have filed to recover interest part that too against solvent Company. And mere agreeing to pay outstanding cannot automatically entitled a party to invoke provisions of Code. It is also to be noted that provisions of Code are being suspended periodically by the Govt. of India to give relief to affected industry. Therefore invocation of provisions code in the present circumstances is too premature and not justified basing on facts and circumstances. Petition is hereby disposed of by directing the Parties to explore the possibility of settling the issue in question as expeditious as possible failing which the Petitioner is entitled to approach this Adjudicating Authority by filing appropriate Petition in accordance with law.

Issues involved:
- Maintainability of the petition under Section 9 of the Insolvency and Bankruptcy Code, 2016.
- Validity of the demand notice issued by the petitioner.
- Dispute over the outstanding interest amount and the impact of the pandemic on the respondent's ability to pay.
- Existence of a prior purchase agreement between the parties.
- Consideration of the pandemic situation and negotiation between the parties.

Analysis:

Maintainability of the petition under Section 9 of the Insolvency and Bankruptcy Code, 2016:
The petitioner, an operational creditor, filed a petition seeking to initiate Corporate Insolvency Resolution Process (CIRP) against the respondent for defaulting on a significant amount. The respondent raised objections citing the suspension of filing applications under Section 9 due to the pandemic and the lack of a demand notice. The respondent argued that the invocation of the Code was premature, given the ongoing negotiations and the impact of the pandemic on the industry. The tribunal emphasized the need for parties to settle the issue promptly before resorting to the Code, highlighting the government's periodic suspension of Code provisions to aid affected industries.

Validity of the demand notice issued by the petitioner:
The respondent disputed the receipt of a statutory demand notice as required under the Code. Despite acknowledging the principal payment, the respondent contended that the delay pertained only to interest payments as per the Terms and Conditions of Sale. The absence of a prior purchase agreement and the focus on recovering interest from a solvent company raised questions about the petitioner's intentions. The tribunal noted that agreeing to pay outstanding amounts did not automatically warrant invoking Code provisions, especially during a period of relief measures for impacted industries.

Dispute over the outstanding interest amount and the impact of the pandemic on the respondent's ability to pay:
The respondent, facing temporary cash flow issues, negotiated a payment plan with the petitioner, which was later modified due to unforeseen delays in funding caused by the pandemic. The respondent, a going concern with sufficient net worth, attributed its payment difficulties directly to the pandemic. The petitioner sought CIRP initiation primarily for interest recovery, prompting the tribunal to urge both parties to expedite issue resolution before escalating the matter to the Adjudicating Authority.

Existence of a prior purchase agreement between the parties:
The respondent highlighted the absence of a written agreement or mutual acceptance of terms and conditions specified by the petitioner in invoices. Disputes over the terms of supply and the lack of a formal agreement raised doubts about the validity of the petitioner's claims, emphasizing the importance of clear contractual arrangements in commercial transactions.

Consideration of the pandemic situation and negotiation between the parties:
Given the unprecedented challenges posed by the pandemic and the ongoing negotiations between the parties, the tribunal emphasized the need for amicable settlements before resorting to legal proceedings. Acknowledging the adverse industry impacts and the parties' efforts to resolve the issue, the tribunal directed them to explore settlement possibilities promptly. Failure to reach a resolution would allow the petitioner to pursue appropriate legal action in accordance with the law, underscoring the importance of exhausting negotiation avenues before invoking insolvency proceedings.

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