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2020 (12) TMI 952 - AT - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - pre-existing dispute or not - HELD THAT - The Hon ble Supreme Court in a catena of Judgements has laid down the Principle that in an Application under Section 9, the Corporate Debtor can point out any Pre-Existing Dispute raised prior to the issuance of Demand Notice under Section 8, IBC, 2016. The existence of Dispute must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice. If it comes to the notice of the Adjudicating Authority that the operational debt is exceeding ₹ 1 lakh and the Application shows that the aforesaid debt is due and payable and has not been paid, in such case, in absence of any existence of a Dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt , the Application under Section 9 cannot be rejected and is required to be admitted. Whether the Dispute pertaining to the invoice of November 2017 was settled between the parties? - HELD THAT - This Tribunal finds force in the contention of the Learned Counsel appearing for the Respondent that there is no cogent evidence that these amounts have been paid towards November 2017 transaction and that the Dispute was completely settled. Learned Counsel placed reliance on the email dated 30.01.2019 and 03.02.2019 to establish that the Dispute with respect to the November 2017 transaction was never resolved. There is an ongoing Dispute which is not specific to only November 2017 transaction. The email dated 08.02.2019 sent by the Operational Creditor to the Corporate Debtor categorically states that the issue was never settled, that nobody on behalf of the Operational Creditor had confirmed the closure of the matters; that the problem in the material supplied was on account of process malfunction at the end of the Corporate Debtor and that the Operational Creditor suffered huge losses and had instructed their office to stop future business with the Operational Creditor. The material on record, specifically the email dated 08.02.2019 evidences that the Dispute is not transaction centric but is an ongoing Dispute . Additionally, there is no documentary evidence to substantiate the contention of the Learned Counsel for the Appellant that November 2017 Dispute was settled. The correspondence between the parties establishes that the Dispute is with respect to substandard material supplied for both the consignments and explicitly refers to problem of adhesion which led to laminates becoming unusable. The object of the Code, at least insofar as Operational Creditors are concerned, was to initiate Insolvency Process against the Corporate Debtor only in clear cases where a real Dispute between the parties as to the debt owed did not exist. In the instant case, this Tribunal is of the considered view that there is sufficient evidence on record to exhibit a Pre-Existing Dispute between the parties prior to the issuance of the Demand Notice under Section 8, IBC, 2016 - In the present case, the defence is not spurious, mere bluster, plainly frivolous or vexatious. Therefore, this Tribunal is of the consequent view that the ratio of the Judgement of the Hon ble Supreme Court in the case of M/s. Mobilox Innovations Pvt. Ltd. V/s. Kirusa Software Pvt. Ltd. 2017 (9) TMI 1270 - SUPREME COURT squarely applies to the facts of the attendant circumstances of the case. Appeal dismissed.
Issues Involved:
1. Pre-existing dispute regarding the quality of goods supplied by the Operational Creditor. 2. Maintainability of the Section 9 Application under the Insolvency and Bankruptcy Code, 2016. Issue-wise Detailed Analysis: 1. Pre-existing dispute regarding the quality of goods supplied by the Operational Creditor: The Operational Creditor, M/s. Sumilon Polyester Private Limited, filed an appeal against the dismissal of their Section 9 application by the National Company Law Tribunal (NCLT), Ahmedabad Bench. The NCLT observed that there was a pre-existing dispute regarding the quality of the materials supplied by the Operational Creditor. The dispute was evidenced by multiple emails exchanged between the parties, including a complaint dated 28.12.2017, which was acknowledged by the Operational Creditor on 02.01.2018. The Operational Creditor agreed to take back 9116.4 kgs of unused material due to quality issues. The Corporate Debtor had also issued debit notes against the defective material supplied. The Appellant contended that the dispute was resolved by May 2018, as evidenced by emails dated 09.01.2019 and 10.01.2019. However, the Respondent argued that the quality issue was never resolved, supported by emails dated 04.01.2019 and 08.02.2018. The Respondent deducted amounts from the payments due to substandard material and raised debit notes, which were communicated to the Operational Creditor. The Tribunal noted that the existence of a dispute must be pre-existing, i.e., before the receipt of the demand notice or invoice. The emails and ledger accounts indicated ongoing disputes regarding the quality of goods, which were not limited to a single transaction but were part of a continuous issue. The Tribunal found no cogent evidence that the dispute was resolved, and the ledger entries did not explicitly show payments made towards the disputed November 2017 transaction. 2. Maintainability of the Section 9 Application under the Insolvency and Bankruptcy Code, 2016: The Tribunal examined whether the Section 9 application was maintainable, given the pre-existing dispute. The Supreme Court in "Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software (P) Limited" and "Innoventive Industries Ltd. v. ICICI Bank and Anr." established that the existence of a dispute before the receipt of the demand notice or invoice is crucial. The Adjudicating Authority must determine if there is an operational debt exceeding ?1 lakh, if the debt is due and payable, and if there is a pre-existing dispute. In this case, the Tribunal found that the dispute regarding the quality of goods existed before the demand notice was issued. The emails and ledger entries supported the existence of an ongoing dispute. The Tribunal emphasized that the IBC is not a substitute for a recovery forum and should not be invoked in cases of real disputes. The Tribunal concluded that the defence raised by the Respondent was not spurious, frivolous, or vexatious. Therefore, the Section 9 application was not maintainable due to the pre-existing dispute. The Tribunal upheld the NCLT's decision to dismiss the application and dismissed the appeal, finding no legal infirmity in the Impugned Order.
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