2018 (4) TMI 1782 - Tri - Companies Law

Maintainability of application - initiation of CIRP application - Corporate Debtor failed to make repayment of debt - existence of debt and dispute or not - HELD THAT - In the present case respondent had raised disputes prior to the issuance of notice under Section 8 of the Code. Invoices pertaining to cost for supply of diesel has been disputed. Confusion on such claims/ invoices has not been clarified satisfactorily with supporting evidence. Issue of approval and reconciliation of the accounts were raised and communicated in the year 2013. Claim of dispute pending long since the year 2011 prima facie suggests the need of investigation on merit. In the factual background it is reiterated that in the present case existence of prior dispute having some substance cannot be ruled out. The moment there is existence of dispute the corporate debtor gets out of the clutches of the Code. Section 9 (5) (ii) (d) of the Code provides that adjudicating authority shall reject the application if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. Petition rejected.

Summary

Issues Involved:
1. Territorial jurisdiction of the Tribunal.
2. Existence of debt and default.
3. Pre-existing dispute between the parties.
4. Limitation period for the claim.
5. Adequacy of the dispute raised by the respondent.
6. Requirement of reconciliation and approval of accounts.
7. Allegations of overpayment and separate diesel invoice dispute.
8. Admissibility of the application under Section 9 of the Insolvency and Bankruptcy Code, 2016.

Issue-wise Detailed Analysis:

1. Territorial Jurisdiction of the Tribunal:
The Tribunal established its territorial jurisdiction over the corporate debtor, M/S D-Art Furniture Systems Private Limited, as its registered office is located in New Delhi. This is in accordance with sub-section (1) of Section 60 of the Insolvency and Bankruptcy Code, 2016.

2. Existence of Debt and Default:
The applicant, M/S Sudhir Sales & Services Limited, claimed an outstanding amount of ?56,37,899/- against the corporate debtor. The claim arose from a contract for the supply of DG sets and diesel, with various invoices raised and partial payments made by the respondent.

3. Pre-existing Dispute Between the Parties:
The respondent contended that there was a pre-existing dispute communicated to the applicant through letters dated 09.09.2017 and 09.11.2017. The Tribunal noted that the definition of "dispute" under Section 5(6) of the Code includes any suit or arbitration proceedings relating to the existence of the amount of debt, quality of goods or service, or breach of representation or warranty.

4. Limitation Period for the Claim:
The respondent argued that the claim was barred by limitation as the invoices pertained to the years 2008 to 2010. The Tribunal acknowledged that the claim had remained unpaid since 2011, and repeated follow-ups were made by the applicant.

5. Adequacy of the Dispute Raised by the Respondent:
The Tribunal emphasized that the dispute should not be vague, fabricated, or raised for the first time to evade liability. The respondent had raised disputes regarding overpayment and the inclusion of diesel costs in the total contract value before the issuance of the demand notice under Section 8 of the Code.

6. Requirement of Reconciliation and Approval of Accounts:
The respondent's letter dated 13.11.2013 indicated the need for reconciliation and approval of accounts. The Tribunal found force in the contention that the reconciliation issue was raised much earlier, in 2013.

7. Allegations of Overpayment and Separate Diesel Invoice Dispute:
The respondent claimed that an excess payment of ?11,21,792/- was made to the applicant and disputed the separate invoices raised for diesel, arguing that the diesel cost was included in the total contract value. The applicant failed to provide specific documents to justify the separate diesel invoices.

8. Admissibility of the Application Under Section 9 of the Insolvency and Bankruptcy Code, 2016:
The Tribunal referred to the Hon’ble Supreme Court's observation in the case of Mobilox Innovative Pvt. Ltd. vs. Kirusa Software Pvt. Ltd., stating that the adjudicating authority must reject the application if there is a plausible contention requiring further investigation and if the dispute is not spurious, hypothetical, or illusory. Given the pre-existing disputes and the need for reconciliation, the Tribunal concluded that the corporate debtor was not liable under the Code.

Conclusion:
The Tribunal rejected the application under Section 9 of the Insolvency and Bankruptcy Code, 2016, due to the existence of a pre-existing dispute and the need for reconciliation of accounts. The Tribunal clarified that its observations should not prejudice the applicant's rights before any other forum. The order was to be served to the parties.