2018 (12) TMI 1686 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of Corporate Insolvency Resolution Process - alleged default on the part of the Respondent in clearing the dues of the Applicant - supply of batteries effected by the Applicant to the Respondent - Section 9 of the Insolvency and Bankruptcy Code - whether there is any dispute raised by the Respondent regarding the supplied effected by the Applicant? HELD THAT - Had the respondent received the batteries with quality issues, he could have addressed the Applicant to take back the defective batteries as listed out in the annexure by the Respondent. The list is only a compilation of batteries and other details and the respondent has not produced any correspondence made to the Applicant on quality issues. Moreover, the contention of the Respondent that he will hold up the payment till the warranty period is also not as per the terms of business transactions in the normal course. There is no document submitted by the Applicant showing that the retention of money for warranty/excise duty was followed in the normal course of business - the issues raised by the respondent cannot be considered as sufficient material to qualify as a 'dispute'. The Tribunal is inclined to admit this application and accordingly initiate the process of CIRP of the Respondent - Application stands admitted in terms of Section 9(5) of IBC, 2016 and the moratorium shall come in to effect as of this date.

Summary

Issues Involved: Initiation of Corporate Insolvency Resolution Process (CIRP), Default in Payment, Quality Dispute, Warranty and Excise Benefit Withholding, Admissibility of Dispute under Insolvency and Bankruptcy Code (IBC).

Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP):
The Applicant, M/s Jay Ace Technologies Ltd., filed an application against the Respondent, M/s Micromax Energy Ltd., seeking to initiate CIRP under Section 9 of the Insolvency and Bankruptcy Code (IBC) for an alleged default in clearing dues amounting to ?88,48,294/- towards the supply of batteries. The Respondent had initially agreed to pay each invoice within 30 days from receipt, failing which an interest of 15% p.a. would be applicable.

2. Default in Payment:
The Applicant supplied batteries as per purchase orders issued by the Respondent and raised invoices for payment. Initially, payments were made timely, but post-August 2017, the Respondent started withholding payments. Despite acknowledging a balance payment of ?2,73,94,780/- in an email dated 03.11.2017, the Respondent only paid ?1,84,41,385/- and failed to clear the remaining ?88,48,294/-. The Applicant issued a demand notice on 04.01.2018 under Section 8 of the IBC, which the Respondent did not act upon within the prescribed 10 days.

3. Quality Dispute:
The Respondent contended that the Applicant supplied poor quality batteries, adversely affecting their market reputation. They claimed damages amounting to ?49 lakhs and stated that more than 250 defective batteries worth ?16.25 lakhs were lying with different dealers. However, the Tribunal noted that no quality issues were raised by the Respondent when confirming the dues on 03.11.2017. The Respondent's claims surfaced only in an email dated 23.11.2017, which the Tribunal found to be a self-declaratory claim without supporting correspondence or evidence of prior disputes.

4. Warranty and Excise Benefit Withholding:
The Respondent argued that ?60,00,000/- was withheld due to the warranty period not expiring and ?30,00,000/- was retained for excise benefits. The Tribunal observed that there was no agreement or prior practice of withholding payments for warranty or excise issues. The Respondent's intention to withhold payments was communicated only after confirming the dues, which did not align with the normal business terms.

5. Admissibility of Dispute under IBC:
The Tribunal examined whether the Respondent's email correspondence amounted to a 'dispute' under the IBC. It concluded that the issues raised by the Respondent did not constitute a valid dispute as per the Code. The Respondent had not produced any prior correspondence about quality issues, and the withholding of payments for warranty and excise was not a standard business practice.

Judgment:
The Tribunal admitted the application and initiated the CIRP against the Respondent. An Interim Resolution Professional (IRP) was appointed, and a moratorium was imposed as per Section 14 of the IBC. The moratorium would prevent the institution or continuation of suits, transferring or disposing of assets, and recovery actions against the Respondent during the CIRP. The Applicant was directed to pay ?2,00,000/- to the IRP for expenses related to the resolution process. The application was admitted under Section 9(5) of the IBC, and the order was communicated to the relevant parties and authorities.