2022 (12) TMI 918 - AT - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - whether any operational debt above the threshold limit had become due and payable to the Operational Creditor and a default in payment thereof had arisen and whether any pre-existing dispute can be deciphered? - HELD THAT - It is well settled that in Section 9 proceeding of IBC, the Adjudicating Authority is not to enter into final adjudication with regard to existence of disputes between the parties regarding the operational debt but what has to be looked into is whether the defence raised by the Corporate Debtor is moonshine defence or not. It has been noted by the Adjudicating Authority that there is no prior dispute regarding quality of goods or material supplied. What however has been held as dispute by the Adjudicating Authority is the difference of views on the actual amount payable by the Corporate Debtor to the Operational Creditor. One reason for this difference to have cropped up is on account of express unwillingness on the part of the Corporate Debtor to clear the liability of outstanding debt for the period prior to change of management. The other reason for the difference has been attributed by the Corporate Debtor to non-reconciliation of accounts. The Adjudicating Authority has glossed over the fact that the Corporate Debtor has not controverted the outstanding liability which it had admitted on 15.04.2017. Furthermore, claiming that no amount is due and payable to the Operational Creditor, we find that the Corporate Debtor has made this statement with the caveat that only invoices, post change in management, have been paid in full. To our mind, this caveat needs to be examined to find out whether it supports the claims of there being a pre-existing dispute - the stand taken by the Corporate Debtor in their reply to the Demand Notice that they are not liable for the claims of the Operational Creditor prior to change in management is not a tenable argument. Change in management is an internal matter of the Corporate Debtor in which the Operational Creditor had no role to play. Change in management of the Corporate Debtor cannot be a ground for extinguishing/wiping off the past liabilities that they owed to the Operational Creditor. From the facts of the present case and the material on record, it also appears that the Corporate Debtor has tried to take advantage of their own wrong of being lackadaisical in reconciling the accounts in spite of nearly 30 requests made by the Operational Creditor to do so. In the entire discussion by the Adjudicating Authority, it is found that no notice has been taken in respect of repeated and multiple reminders sent by the Operational Creditor to the Corporate Debtor in this regard including undertaking visits to the office of the Corporate Debtor. Both these grounds lack merit to be treated as pre-existing dispute and appear to be clearly motivated by the Corporate Debtor to wriggle out of their obligation to clear outstanding liabilities and therefore the defence raised is at best a moonshine defence and hence untenable - the ground for rejection of the Application under Section 9 of IBC was erroneous. Appeal is allowed.

Summary

Issues Involved:
1. Whether any operational debt above the threshold limit had become due and payable to the Operational Creditor.
2. Whether a default in payment thereof had arisen.
3. Whether any pre-existing dispute can be deciphered.

Issue-wise Detailed Analysis:

1. Operational Debt and Default:
The Appellant, an Operational Creditor, had a business relationship with the Corporate Debtor involving the supply of packing wrappers. The Corporate Debtor issued purchase orders, and invoices were raised by the Appellant. The Corporate Debtor made payments on a "first in first out" basis, maintaining a running account. The last invoice was sent on 29.07.2016, and several reminders were issued for outstanding dues, including a reminder on 14.04.2017 for Rs. 70,76,730/-. The Corporate Debtor admitted liability of Rs. 37,33,552/- on 15.04.2017. Despite this, the Appellant claimed a net receivable amount of Rs. 55,23,253/- after adjustments. A demand notice was issued on 28.11.2018, and the Corporate Debtor's reply on 11.12.2018 was beyond the prescribed timeline.

2. Pre-existing Dispute:
The Corporate Debtor contended that the matter was not maintainable as the Appellant did not crystallize the actual amount due, claiming different amounts at different times. The Corporate Debtor asserted that all invoices post-change of management were paid, and an excess payment of Rs. 82,141/- was made. The Adjudicating Authority noted a serious dispute regarding the amount payable, suggesting that the parties approach the proper forum. The Corporate Debtor also mentioned that Rs. 37,33,552/- was the balance for invoices before the management change and that the Appellant failed to reconcile accounts despite requests.

3. Examination of Dispute and Debt:
The Tribunal referenced the legal proposition from Mobilox Innovations Private Limited vs. Kirusa Software Private Limited, stating that the Adjudicating Authority must determine if there is an operational debt exceeding Rs. 1 lakh, if the debt is due and unpaid, and if there is a pre-existing dispute. The Appellant's contention was supported by an email from the Corporate Debtor admitting Rs. 37,33,552/- as due. Another communication on 27.12.2017 requested immediate payment of Rs. 39,08,005/- as per the Corporate Debtor's records, with further explanations leading to a total claim of Rs. 55,23,253/-.

Conclusion:
The Tribunal found that the Adjudicating Authority erred in concluding a serious dispute based on the Corporate Debtor's reply. The Corporate Debtor's defence, claiming non-liability for dues prior to the management change, was deemed untenable. The Tribunal noted the Corporate Debtor's failure to reconcile accounts despite multiple reminders from the Appellant. The defence was considered a moonshine defence, lacking merit as a pre-existing dispute. Consequently, the Tribunal allowed the appeal, set aside the Impugned Order dated 20.07.2022, and directed the Adjudicating Authority to admit the Section 9 Application under IBC within one month and proceed in accordance with the law. No order as to costs.