2018 (12) TMI 1699 - Tri - Insolvency and Bankruptcy

Admissibility of application - Initiation of CIRP - Corporate debtor - pre-existing dispute or not - section 9 of Insolvency and Bankruptcy Code, 2016 read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 - HELD THAT - There is Pre-existence dispute though is not legally crystalized in any litigation but a valid dispute was raised by corporate debtor time and again much prior to the notice served under section 8 of I B Code. It is a fit case to reject the application under section 9 of the I B Code. The present application is hereby dismissed.

Summary

Issues:
1. Application under section 9 of Insolvency and Bankruptcy Code, 2016 for initiation of Corporate Insolvency process.
2. Dispute raised by the Corporate Debtor regarding quality of goods supplied.
3. Examination of the existence of a pre-existing dispute between the parties.
4. Interpretation of the term "dispute" under the Insolvency and Bankruptcy Code, 2016.
5. Analysis of the jurisprudence on the concept of dispute in insolvency proceedings.

Analysis:
1. The application was filed by an operational creditor seeking initiation of Corporate Insolvency process against the Corporate Debtor under section 9 of the Insolvency and Bankruptcy Code, 2016. The Applicant alleged a default amounting to ?17,42,195/- by the Corporate Debtor, based on unpaid invoices for supplied fabrics with an interest clause for delayed payments.

2. The Corporate Debtor raised a dispute regarding the quality of fabrics supplied by the Applicant, claiming that defective materials led to rejection by the buyer, resulting in financial losses and damage to its reputation. The CD contended that it had informed the Applicant about the defects and had sought rectification, which was not adequately addressed.

3. The Tribunal examined the records and concluded that a pre-existing dispute regarding deficient performance and quality of goods existed between the parties. The Corporate Debtor had raised concerns about the fabric quality before the notice under section 8 of the Code was served, indicating a long-standing dispute that required further investigation.

4. The definition of "dispute" under the Code was analyzed, emphasizing that it includes disagreements related to debt amounts, quality of goods or services, or breaches of representations or warranties. The Tribunal noted that the term dispute is not limited to pending suits or arbitration but encompasses a wide range of disagreements requiring trial or investigation.

5. Referring to relevant judgments, including the Supreme Court's ruling in "Mobilox Innovative Private Limited vs. Kirusa Software Private Limited," the Tribunal highlighted the need to distinguish between genuine disputes and spurious defenses. It emphasized that the existence of a real dispute, even if not guaranteed to succeed, warrants rejection of insolvency applications.

6. Ultimately, the Tribunal dismissed the application, citing the presence of a valid pre-existing dispute that was not legally crystallized but had been raised by the Corporate Debtor before the notice under section 8 was issued. The decision was based on the finding that the Corporate Debtor had sufficiently raised a dispute regarding the quality of goods supplied, warranting rejection of the insolvency application under section 9 of the Code.