2022 (5) TMI 436 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - HELD THAT - A perusal of the order of the Adjudicating Authority given on 06.09.2021 it is found that in the order a statement is recorded which is ascribed to the Ld. Counsel for the Appellant that the Corporate Debtor had appeared on 11.03.2020 and thereafter has appeared intermittently but did not file reply. The orders of the Adjudicating Authority given on various dates of hearings show that the Corporate Debtor did not appear on any date after 11.03.2020 nor was given an opportunity to file a reply. In fact, on all dates of hearing after 11.03.2020 the matter was renotified, except on 01.12.2020, when the Petitioner was directed to file an affidavit of service. From a perusal of record submitted, it is not clear if such a service was effected and whether the affidavit of service was filed by the Petitioner. The allegations of dispute vide his reply dated 15.01.2020 to the Section 8 Demand Notice raised by the Corporate Debtor can be looked into after getting a proper reply to Section 9 application from the Corporate Debtor. Therefore, the compliance of order dated 06.09.2021 to make the corporate debtor aware that case had been proceeded ex-parte against him and an opportunity to make representation to file a reply assumes significance and criticality in adjudicating Section 9 application. The Adjudicating Authority gave an opportunity to the Corporate Debtor against whom the matter was proceeded ex-parte to appear before the Adjudicating Authority and present his case vide order dated 06.09.2021, but there is no record submitted by the parties to show that in compliance of the order dated 06.09.2021 the order was served on the Corporate Debtor. In the light of such deficiency, and also the issues raised by the Ld. Counsel for the Appellant that there was pre-existing dispute mentioned in his reply to the demand notice dated 15.01.2020, and also that in case the Corporate Debtor had been provided sufficient opportunity to reply to the Section 9 application he would have brought these facts before the Adjudicating Authority, it is opined that the Adjudicating Authority has committed an error in proceeding ex-parte against the Corporate Debtor and not communicating order dated 06.09.2021 to him. It would serve the ends of the justice if the Corporate Debtor is provided an opportunity to submit his reply in Section 9 Application - the case is remanded to the Adjudicating Authority for giving a notice to the Corporate Debtor and affording him opportunity to submit a reply and thereafter pass appropriate orders after due consideration in the Section 9 application filed by the Operational Creditor - application allowed by way of remand.

Issues Involved:
1. Non-appearance of the Corporate Debtor in proceedings before the Adjudicating Authority.
2. Alleged pre-existing dispute between the parties.
3. Admission of Section 9 application under the Insolvency and Bankruptcy Code, 2016.

Detailed Analysis:

Issue 1: Non-appearance of the Corporate Debtor in proceedings before the Adjudicating Authority

The Corporate Debtor argued that they were not afforded an opportunity of hearing during the consideration of the Section 9 application filed by the Operational Creditor, thereby denying them the chance to state their case and defend themselves. The Corporate Debtor claimed that no notice of hearing on 06.09.2021 and 07.10.2021 was served upon them by either the Operational Creditor or the Registry of NCLT, New Delhi. The record showed that the matter was first taken up on 25.02.2020, with various dates of hearing subsequently listed, but the Corporate Debtor did not appear after 11.03.2020. The Adjudicating Authority proceeded ex-parte against the Corporate Debtor on 06.09.2021, directing that a copy of the order be served on the Corporate Debtor. However, there was no document submitted to show that this order was served on the Corporate Debtor. The Tribunal found that the statement of the Ld. Counsel for the Appellant that the Corporate Debtor had appeared intermittently after 11.03.2020 but not filed a reply was not supported by the record. Therefore, the Tribunal concluded that the Adjudicating Authority's decision to proceed ex-parte was not based on facts on record.

Issue 2: Alleged pre-existing dispute between the parties

The Corporate Debtor claimed that there were flaws and deficiencies in the services provided by the Operational Creditor, which were brought to their notice by ICAR. The Corporate Debtor argued that the Operational Creditor did not install the required hardware of CCTV cameras at many venues and deleted the CCTV footage in haste, leading to the termination of the contract by ICAR. The Corporate Debtor contended that there was a pre-existing dispute regarding the services provided, and mutually agreed payments were made after deductions for deficient services. The Tribunal noted that the allegations of dispute raised by the Corporate Debtor in their reply to the demand notice dated 15.01.2020 could be looked into after getting a proper reply to the Section 9 application from the Corporate Debtor. The Tribunal emphasized that the compliance of the order dated 06.09.2021 to make the Corporate Debtor aware that the case had been proceeded ex-parte against them and an opportunity to make a representation to file a reply was significant in adjudicating the Section 9 application.

Issue 3: Admission of Section 9 application under the Insolvency and Bankruptcy Code, 2016

The Operational Creditor argued that the notice of Section 9 application was issued by the order of the Adjudicating Authority on 25.02.2020, and the matter was posted for hearing on 11.03.2020. The Operational Creditor claimed that the Corporate Debtor appeared before the Adjudicating Authority on 11.03.2020, but there was no appearance on behalf of the Corporate Debtor on subsequent dates. The Operational Creditor also contended that the dispute raised by the Corporate Debtor in their reply to the demand notice was a sham and imaginary dispute. The Tribunal referred to the Judgment of the Hon’ble Supreme Court in the matter of Mobilox Innovations Private Ltd vs Kirusa Software Private Ltd, which stated that any dispute which is a sham need not be taken into consideration in examining the Section 9 application. The Tribunal concluded that the Adjudicating Authority had committed an error in proceeding ex-parte against the Corporate Debtor without communicating the order dated 06.09.2021 to them. The Tribunal held that it would serve the ends of justice if the Corporate Debtor was provided an opportunity to submit their reply in the Section 9 application. Therefore, the Tribunal allowed the appeal, set aside the impugned order dated 13.10.2021, and remanded the case to the Adjudicating Authority for giving notice to the Corporate Debtor and affording them an opportunity to submit a reply.

Conclusion:

The Tribunal allowed the appeal, set aside the impugned order dated 13.10.2021, and remanded the case to the Adjudicating Authority for giving notice to the Corporate Debtor and affording them an opportunity to submit a reply. The Tribunal did not provide any opinion regarding the pre-existing dispute between the parties and directed that the Corporate Debtor shall be free from the rigors of the Corporate Insolvency Resolution Process and other provisions of IBC.

← Previous Next →