Agarwal Veneers Vs Fundtonic Service Pvt. Ltd. (NCLAT Delhi)
Held that application to initiate CIRP, against solvent and going concern company, can be denied when creditor is using insolvency as a substitute for debt recovery procedure.
Facts- The appellant had filed a petition u/s. 9 of the Insolvency and Bankruptcy Code, 2016 before the NCLT seeking initiation of Corporate Insolvency Resolution Process (CIRP) against Fundtonic Service Pvt. Ltd. (Respondent). NCLT vide an order dated 29.09.2020 had rejected the petition while observing that –
1. The Demand Notice issued u/s. 8 of the IBC was issued by an advocate to whom no authority was given to issue such notice and there was nothing on record to show that the advocate was associated to the Appellant.
2. The Respondent is a going concern and at present giving employment to 20 employees. Hence, it would defeat the very purpose of the IBC, if a going concern generating revenue, the employees and stakeholders are subject to the rigors of the CIRP.
3. The Appellant had filed the petition as a tool of recovery mechanism which is not the objective of the IBC.
4. The Respondent falls within the category of MSME and CIRP proceedings against a going concern jeopardizing livelihood of several families is against the objectives of IBC.
5. The Appellant had not produced on record documents like copy of the purchase order, delivery challan and a copy of bank statement showing that no payment is received from the corporate debtor towards the invoices raised to substantiate its claim.
The above order is challenged by the appellant.
Conclusion- We are of the considered view that as far as this issued is concerned, an advocate can, on behalf of the Company issue a demand notice under Section 8 and no such document is required to establish his ‘period of association’ with the said Company.
Held that unless the Operational Creditor along with its Application furnishes a copy of the invoices, the bank statements and the financial accounts, the Adjudicating Authority is empowered to reject an incomplete Application.
Held that any Application to commence CIRP can be denied when the Creditor is using Insolvency as an inappropriate substitute for Debt Recovery Procedures. If IBC is purely used for the purpose of Debt Recovery, particularly when the amounts due are small, and the Company is a solvent entity and is a going concern, the question of ‘Reorganising’ or ‘Resolution of the Company’ does not arise.
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
This Appeal challenges the order dated 29.09.2020, passed by Learned
Adjudicating Authority (National Company Law Tribunal, Ahmedabad Bench, Ahmedabad) Court-2 in C.P. (I.B) No. 824/NCLT/AHM/2019, whereby the
Application under Section 9 of the Insolvency and Bankruptcy Code, 2016(herein after referred to ‘the Code’) was rejected. By the impugned order, Ld. Adjudicating Authority has observed as follows:
“9. On perusal of the records it is found that the Respondent has issued two demand notices (page 28-55), the first one dated 24.06.2019 and second one dated 20.07.2019. Demand notice which is a pre- requisite under Section 8 of the Insolvency & Bankruptcy Code, 2016 for filing the petition under Section 9, is signed and issued by an advocate on behalf of M/s. Nehru & Co. (Advocates and Legal Consultants), whereas, the petition is signed by Mr. Rohit Agarwal, Partner of the applicant frim on the basis of authority letter dated 20.08.2019 issued by the other partner of the partnership firm. On perusal of the records it is found that no authority is given to the advocate to issue demand notice or for filing an application u/s 9 of the IB Code. Similarly, no document is produced by the applicant showing that the advocate who has signed the application is associated with the company for a long period and can take such steps on behalf of the company. Therefore, the demand notice which is a pre-requisite for filing an application under Section 9 of the itself is bad in the eye of law.
10. On perusal of the records it is found that the Respondent Company is a going concern and at present giving employment to 20 employees. Hence, it would defeat the very purpose of the Code, if a going concern generating revenue, the employees and stakeholders are subject to the rigors of the CIRP. It appears that the operational creditor has filed the instant petition as a tool of recovery mechanism which is not the objective of the IBC. It is a settled law that the Code is not intended to be a substitute to a recovery forum. More so, when the corporate debtor company falls within the category of Micro, Small and Medium Enterprise (MSME), CIRP proceedings against a going concern Jeopardising livelihood of several families is against the objectives of IB Code and cannot be used to jeopardise the financial health of a solvent company by pushing it into insolvency Initiating.
11. Notwithstanding above, it is found that the petitioner has not produced on record documents like copy of the purchase order and delivery challan to substantiate its claim. Moreover, the applicant has not produced on record a copy of bank statement showing that no payment is received from the corporate debtor towards the invoices against which the claim has been raised.
12. Under the facts and circumstances discussed above, the Adjudicating Authority has no other option but to dismiss the petition as it is bad in the eye of law and not maintainable on the very reason that the demand notice is issued without any authority.
13. In the result, company Petition No. CP (IB) 824 of 2019 stands dismissed and disposed of. However, this will not stand in the way of the Petitioner approaching the appropriate forum seeking to enforce its claim against the Respondent, as this petition has been dismissed on the issue of maintainability taking into consideration the provisions of IB Code, 2016”.
2. Submissions of the Ld. Counsel appearing on behalf of the Appellant.
Comments are closed.