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The Insolvency and Bankruptcy Code, 2016 is not intended for Recovery, Existence of a Real Dispute excludes its Invocation: National Company Law Appellate Tribunal

The necessity to limit the application of the Insolvency and Bankruptcy Code, 2016, and prevent the use of the statute as a means of recovery of sums, was examined by the NATIONAL COMPANY LAW APPELLATE TRIBUNAL PRINCIPAL BENCH, NEW DELHI, consisting of Justice Ashok Bhushan, Chairperson, Justice Jarat Kumar Jain, Member (Judicial); and Dr. Ashok Kumar Mishra, Member (Technical), in the matter of Go Airlines (India) Ltd. vs. Sovika Aviation Services Pvt. Ltd. [Company Appeal(AT) (Ins) No. 1118 of 2019], on 10.12.21.

The facts of the case were that the appellant, a passenger airline operator having ‘Domestic’ and ‘International’ flights, had entered into a Cargo Agreement dated 09th July, 2016, with the respondents, vide which the appellant had agreed to provide to the respondent, cargo belly space in its fleet of aircraft to carry out cargo services for such consideration and on such terms as specified in the agreement. A subsequent agreement was also involved, in addition to the shaky financial condition of the respondent.

 The appellant filed the present appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016, against the impugned order passed by the Adjudicating Authority, the National Company Law Tribunal, Mumbai bench, dismissing the petition filed by the appellant under Section 9 for initiation of the Corporate Insolvency Process against the respondent.

It was observed that the Adjudicating Authority had taken due consideration of the several evidences on record as placed by both the sides before drawing a conclusion that the liability in question of Operational Debt was not a clean and clear liability, what to say, an “admitted” liability on the part of the Debtor Company, that is, the respondent. It was noted that the alleged liability in question was contentious as well as disputed; and a petition is not in the nature of a Civil Suit for settling a dispute erupted among the parties, neither is the Code is to be used for recovery purposes. The purpose of the Code being to re-structure the finances and business of a debt-ridden Debtor by maximizing the value of its assets, in the case at hand, it as held doubtful whether the liability in question is payable or not. It was observed that the issue can only be decided on long drawn discussion based upon thorough investigation of evidences.

The National Company Law Appellate Tribunal, held that it agreed with the Adjudicating Authority in concluding that no force lay in the petition on account of the preliminary reason that there was undisputedly pre-existence of dispute among the appellant and the respondent. Relying on precedents, the Court noted that the Adjudicating Authority has drawn the inference of ‘pre-existence of dispute’ which cannot be ruled out. It was also observed that it was very much clear that the appellant is chasing for payments which is also not the purpose of the Code. Thus, the tribunal found no infirmity in the impugned order, and dismissed the appeal accordingly.

Click here to read the judgement.

Judgement reviewed by Bhargavi.

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