The National Company Law Appellate Tribunal (“NCLAT“), Principal Bench, on August 07, 2022 while adjudicating an appeal filed in M/s Agarwal Veneers v Fundtonic Service Pvt. Ltd., upheld the dismissal of a Section 9 petition on the grounds of the Corporate Debtor being a solvent company, operating as a ‘going concern’ and is also a MSME enterprise providing employment and generating revenue. It was held that in such cases, especially when due amount is small, the question of ‘Reorganising’ or ‘Resolution of the Company’ does not arise.

In the instant matter, M/s Agarwal Veneers (“Appellant“) had filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“IBC“) before the NCLT Ahmedabad Bench (“Adjudicating Authority“), seeking initiation of Corporate Insolvency Resolution Process (“CIRP“) against Fundtonic Service Pvt. Ltd. (“Respondent“).

The Adjudicating Authority rejected the petition while observing the following grounds:

1. That the Demand Notice issued under Section 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 with the Appellant.
2. That 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. That the Appellant had filed the petition as a tool of recovery mechanism which is not the objective of the IBC.
4. That the Respondent falls within the category of Micro, Small and Medium Enterprise (MSME) and CIRP proceedings against a going concern jeopardizing livelihood of several families is against the objectives of IBC.
5. That 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 Bench observed that a Demand Notice under Section 8 could be issued by an advocate. However, the Adjudicating Authority is empowered to reject an incomplete petition under Section 9 if a copy of the invoices, the bank statements and the financial accounts are not furnished alongwith it. The Preamble of IBC describes its spirit and objective to be ‘Reorganisation’ and ‘Insolvency Resolution’, specifically omitting the word ‘Recovery’. 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.

Reliance was placed on the Supreme Court judgment in Vidarbha Industries Power Ltd. vs. Axis Bank Ltd., 2022 SCC Online SC 841, wherein was held that if there is a ‘debt’ and ‘default’, the Adjudicating Authority should use its discretion in admitting/ rejecting an Application.

Finally, the Bench upheld the order of the Adjudicating Authority and dismissed the appeal.