TMI Blog2018 (8) TMI 1876X X X X Extracts X X X X X X X X Extracts X X X X ..... debt and default in payment of debt which is due and payable under the Code, 2016 but due to literal interpretation of section 11 of the Code, 2016, the Applicant herein is treated as Corporate Applicant as per the proviso to section 11 of the Code, 2016, and there is much needed clarification required as to whether corporate debtor undergoing corporate insolvency resolution process filing Application under section 9 of the Code, 2016 can file it in the capacity of Operational Creditor or Corporate Debtor/ Corporate Applicant for Corporate Debtor against the same or another corporate debtor. Form the wordings of the Code it is not manifested whether the intent of legislature was to debar the company who is undergoing CIRP, from enforcing its right to recover legal debt which is indispensable for the survival and revival of the company. The point raised by the Ld. Counsel for the applicant that company who is a corporate debtor, if is not allowed to recover its debt receivables which was the cause of its undergoing ICRP, and recovery of its debt being the only hope of such corporate debtor to come out of CIRP. Subsequently if not permitted can subtly lead to the fatal conse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orporated under the provisions of the Companies Act, 1956 on 01.04.1981 having CIN U18109DL1981PTC011531 as per Master Data at Annexure II(B). 7. The Corporate Debtor is having its registered office at D- 6/8, Okhla Industrial Area, Phase-II, New Dlehi-110020. 8. The Corporate Debtor is engaged in the manufacturing and sales of garments. 9. The Nominal share capital of the Corporate Debtor is ₹ 13,00,00,000/- and Issued, Subscribed and Paid up share capital of the company is ₹ 12,98,03,300/-. 10. The Corporate Debtor has duly authorized Mr. Ashok Logani to file the reply of present application by the resolution passed in the meeting of Board of Directors dated 30.06.2018 of the company. 11. It is stated by the Applicant that an agreement was entered into between the parties, for supply of fabric by the Operational Creditor as per the orders received from the Corporate Debtor. Pursuant thereto, from time to time, the respondent-corporate debtor placed specific orders for supply of fabric by the company. Against the Goods supplied, the company raised invoices for the payment by the Corporate Debtor and requested for the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce it is not palatable to accede to the claim of the Corporate Debtor that there is a pre-existing dispute as between the Operational Creditor and the Corporate Debtor as contemplated under the provisions of Code, 2016. 15. Considering the submission of both parties, the defense of the Corporate Debtor to stave off the Insolvency Resolution Process as sought to be unleashed by the Applicant, which primarily rests on the ground of a preexisting dispute prior to the filing of the application and in the circumstances the application should be dismissed as not maintainable. In view of the above contention, it is necessary to ascertain the definition of dispute . In relation to Code, 2016, dispute has been defined in Section 5(6) as follows: dispute includes a suit or arbitration proceedings relating to-(a) the existence of the amount of debt; (b) the quality of goods or service; or (c) the breach of a representation or warranty. 16. As per the reply filed by the Corporate Debtor, it can be inferred concluded that the dispute raised by the corporate debtor does not fall within the definition of dispute as reproduced above, and the plea of dispu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... access the electronic records of corporate debtor from information utility having financial information of the corporate debtor; (d) have the authority to access the books of account, records and other relevant documents of corporate debtor available with government authorities, statutory auditors, accountants and such other persons as may be specified. Section 25. Duties of resolution professional (1) It shall be the duty of the resolution professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor. (2) For the purposes of sub-section (1), the resolution professional shall undertake the following actions, namely: - (a) take immediate custody and control of all the assets of the corporate debtor, including the business records of the corporate debtor; (b) represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasijudicial or arbitration proceedings; (c) raise interim finances subject to the approval of the committee of creditors under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he corporate debtor; or (c) an individual who is in charge of managing the operations and resources of the corporate debtor; or (d) a person who has the control and supervision over the financial affairs of the corporate debtor; Further as per section 6 of IBC, 2016 following persons may initiate corporate insolvency resolution process, where any corporate debtor commits a default, a financial creditor , an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under this Chapter. Section 3(8) of the IBC, 2016, provides that corporate debtor means a corporate person who owes a debt to any person; 19. The learned Counsel for the Corporate Debtor has contended that the Applicant who is Resolution Professional for the Company is debarred from filing the present application as the Applicant herein is undergoing corporate insolvency resolution process pursuant to order dated 29.09.2017 passed by the NCLT, Mumbai Bench in CP No. 1399/I BP/2017 and the present application under Section 9 of IBC, 2016 is filed by Ms. Charu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the language of statute is clear, the plain words should be strictly relied. The applicant has relied on the order of NCLT, Mumbai in the case of Jai Ambe Enterprise vs. S. N. Plumbing Private Limited wherein it is expressed prima facie that para 4. The action of the resolution professional against on of the Debtor of the SN plumbing appears to be a correct legal action. It is one of the duties of resolution professional to recover the outstanding debts of a corporate debtor against whom already CIRP is in progress. Further, in para 5. it is opined that, the language of section 60(2) and other allied provisions under the Code has no ambiguity that no two parallel insolvency proceedings must run against the same corporate debtor. Hence a clarification is needed in this case that SN plumbing has not submitted the impugned petition before the respected NCLT Bench, Hyderabad in the capacity of a corporate debtor but undisputedly, the said petition is filed in the capacity of an operational creditor. It further held that the action of resolution professional on behalf of SN Plumbing is a right recourse of action for managing the affairs of the financially stressed company. The proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold as a going concern. Hence, when delays induce liquidation, there is value destruction. Further, even in liquidation, the realization is lower when there are delays. Hence, delays cause value destruction. Thus, achieving a high recovery rate is primarily about identifying and combating the sources of delay. The role that insolvency and bankruptcy plays in debt financing Creditors put money into debt investments today in return for the promise of fixed future cash flows. But the returns expected on these investments are still uncertain because at the time of repayment, the seller (debtor) may make repayments as promised, or he may default and does not make the payment. When this happens, the debtor is considered insolvent. Other than cases of outright fraud, the debtor may be insolvent because of Financial failure a persistent mismatch between payments by the enterprise and receivables into the enterprise, even though the business model is generating revenues, or Business failure which is a breakdown in the business model of the enterprise, and it is unable to generate sufficient revenues to meet payments. Objectives the Committe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs to the enterprise, either directly or through the regulated professional. 7. The law must enable access to this information to third parties who can participate in the resolution process, through the regulated professional. III. The Code will ensure a time-bound process to better preserve economic value. 8. The law must ensure that time value of money is preserved, and that delaying tactics in these negotiations will not extend the time set for negotiations at the start. 22. The learned counsel for the Applicant submitted that legislative intent and rationale under section 11 in relation to the present application as per Committee report on the Insolvency and Bankruptcy Bill, 2015 which is enumerated as follows: a. To prevent the misuse of the provisions of the Code by corporate debtors who have already availed the benefits of the Code; b. To prevent misuse by corporate debtors and financial debtors who have violated the resolution plans made for the corporate debtor; c. To prevent multiple proceedings in respect of corporate debtor and to avoid duplication and multiplicity. 23. Thus, it is contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corporate debtor further relied on the order of Hon ble NCLT, Allahabad Bench under section 7 of IBC, 2016 wherein it was held that- This petition has been filed under section 7 of IBC, 2016, by JEKPL Pvt. Ltd. To initiate CIRP under this Code. The same Applicant has earlier filed a petition under section 10 of IBC, 2016 disentitles the corporate debtor to move a fresh application under this Code if it has been subject to corporate insolvency process within 12 months. Given the specific bar of section 11 of the IBC, 2016 present petition filed under section 7 of IBC, 2016 is not maintainable and deserves to be dismissed at the verythreshold. Further the Hon ble Supreme of India in Mobilox Innovations Private Limited vs. Kirusa Sortware Private limited has observed that- The adjudicating authority, when examining an application under Section 9 of the Act will have to determine: (i) Whether there is an operational debt as defined exceeding ₹ 1 lakh? (See Section 4 of the Act) (ii) Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , to sell the immovable and movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract, with power to transfer such property to any person or body corporate, or to sell the same in parcels in such manner as may be specified; (g) to draw, accept, make and endorse any negotiable instruments including bill of exchange, hundi or promissory note in the name and on behalf of the corporate debtor, with the same effect with respect to the liability as if such instruments were drawn, accepted, made or endorsed by or on behalf of the corporate debtor in the ordinary course of its business; (h) to take out, in his official name, letter of administration to any deceased contributory and to do in his official name any other act necessary for obtaining payment of any money due and payable from a contributory or his estate which cannot be ordinarily done in the name of the corporate debtor, and in all such cases, the money due and payable shall, for the purpose of enabling the liquidator to take out the letter of administration or recover the money, be deemed to be due to the liquidator himself; (i) to obtain any professional assistance fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt has filed on record consent form of the Interim Resolution Professional (IRP), to be appointed by the order of Tribunal, of Mr. Vivek Parti, having registration number IBBI/IPA-001/IP-P00813/2017-18/11376, duly registered with Insolvency and Bankruptcy Board of India, as the Interim Resolution Professional subject to the condition that no disciplinary proceedings are pending against such an IRP named who may act as an IRP in relation to the CIRP of the Corporate Debtor and specific consent is filed in Form 2 of Insolvency and Bankruptcy Board of India (Application to Adjudicating Authority) Rule, 2016 in relation to specifically the Corporate Debtor and the Applicant herein and make disclosures as required under IBBI (insolvency Resolution Process for Corporate Persons) Regulations, 2016 within a period of one week from the date of this order. Written Communication, dated 11.05.2018, by Mr. Vivek Parti in Form 2 is annexed to the present application. 30. The registered office of corporate debtor is situated in New Delhi and therefore this Tribunal has jurisdiction to entertain and try this application. 31. The amount of default exceeds ₹ 1,00,000/- as p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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