2019 (7) TMI 1569 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate debtor failed to make repayment of its debt - existence of debt and pre-existing dispute or not - HELD THAT - There were disputes existing prior to the issuance of the Demand Notice. We find the mails on record corroborate the Corporate Debtor's defence that a dispute in respect of the payment claimed existed even prior to the issuance of the demand notice. A pre- existing dispute does not entitle the Operational Creditor to seek Insolvency Resolution of the Corporate Debtor. Whether the Corporate Debtor is entitled to seek recovery or is justified in withholding the amount/ retention money is not for the consideration of this Bench. The disputes in-existence pertain to an outstanding liability for which a provision for resorting to arbitration exists. The defence raised by the Corporate Debtor needs adjudication which may or may not culminate in their favour, but suffice it to say that a plausible defence has been raised by way of a dispute, raised prior to the issuance the demand notice under section 8 of the Code, which prima facie does not appear to be mere moonshine. This Bench is of the view that the prayer for initiating Corporate Insolvency Resolution process of the Corporate Debtor is not sustainable - Petition rejected.

Summary

Issues:
Initiation of Insolvency Resolution Process of Corporate Debtor based on outstanding payments and disputes regarding the same.

Analysis:
1. The Operational Creditor filed a petition seeking the initiation of the Insolvency Resolution process against the Corporate Debtor, alleging non-payment of a balance amount due for construction work undertaken.
2. The Operational Creditor claimed that despite receiving partial payments and deductions made by the Corporate Debtor, there was still a significant balance outstanding, including a retention amount.
3. A demand notice was issued to the Corporate Debtor under section 8 of the Insolvency and Bankruptcy Code, which was disputed by the Corporate Debtor, citing discrepancies and non-adherence to work order specifications.
4. The Corporate Debtor contended that the Operational Creditor had not followed the terms of the work order, and the final bill had not been raised or accepted, which is crucial for concluding the contract.
5. Prior to the demand notice, the Corporate Debtor had raised disputes regarding the claims made by the Operational Creditor, pointing out discrepancies and the need for further reconciliation.
6. The Corporate Debtor argued that they were entitled to recover a significant amount from the Operational Creditor and that the disputes should be resolved through arbitration as per their agreement, beyond the jurisdiction of the Tribunal.
7. The Tribunal observed that pre-existing disputes regarding payment existed before the demand notice was issued, indicating that a genuine dispute was raised by the Corporate Debtor, making the initiation of insolvency resolution unsustainable.
8. The Tribunal concluded that the disputes between the parties required adjudication, potentially through arbitration, and the Operational Creditor could not seek insolvency resolution based on disputed claims.
9. Consequently, the Tribunal rejected the petition for initiating the Corporate Insolvency Resolution process, emphasizing the need for resolving the underlying disputes through appropriate legal mechanisms.

This analysis highlights the key arguments, disputes, and legal considerations involved in the judgment delivered by the National Company Law Tribunal, New Delhi, regarding the initiation of insolvency resolution proceedings based on outstanding payments and disputes between the Operational Creditor and the Corporate Debtor.