2018 (11) TMI 1778 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - HELD THAT - The Corporate Debtor has placed on record sufficient material to establish that there was existence of communication informing rejection of defective chemical due to which payment in respect of that very invoice was stopped. The Debtor company had also demonstrated that the chemicals supplied through several other invoices being satisfactory payments were made. Naturally a question arises that if substantial payment had already been cleared by the Debtor company then why the impugned small amount remained outstanding. The answer is obvious that there was dissatisfaction due to which the Debtor had informed the Petitioner to remove the defective chemicals. The case laws cited although by the Petitioner supports this view considering the evidence on record in this case. Considering all the facts and circumstances narrated above this Company Petition is liable to be dismissed as dispute was in existence. Petition dismissed.

Summary

Issues:
Company Petition under Section 9 of Insolvency & Bankruptcy Code, 2016 for initiation of Corporate Insolvency Resolution Process (CIRP) due to default in payment. Existence of dispute regarding quality of goods supplied and outstanding payment.

Analysis:
1. The Petitioner, an Operational Creditor, filed a Company Petition under Section 9 of the Insolvency & Bankruptcy Code, 2016 against the Corporate Debtor for defaulting on a payment of 2,78,772 with an interest claim of 4,62,852. The Petitioner alleged non-payment for the supply of chemicals to the Corporate Debtor in 2014, leading to the initiation of the Corporate Insolvency Resolution Process (CIRP).

2. The history of the case reveals a business relationship between the parties since 2012-13, with continuous supply of chemical items by the Petitioner to the Corporate Debtor. After the last delivery in December 2014, the Corporate Debtor failed to make payments, resulting in a significant outstanding amount.

3. Despite repeated attempts by the Petitioner to recover the outstanding amount, including issuing a demand notice under Section 8 of the IBC, the Corporate Debtor raised a dispute regarding the quality of goods supplied. The Corporate Debtor alleged that the materials were of inferior quality and provided evidence to support their claim, including a chemist report and specification reports.

4. The Corporate Debtor contended that the Petitioner concealed the existence of a dispute and failed to replace the rejected goods, which led to the non-payment. The Corporate Debtor also highlighted that substantial payments were made for other supplies, indicating a specific issue with the rejected goods.

5. The judgment considered various legal precedents cited by the Petitioner regarding the existence of disputes before the issuance of demand notices under the IBC. The Corporate Debtor argued that the Petitioner's failure to address the rejected goods and the subsequent stoppage of payment demonstrated the pre-existence of a dispute.

6. Ultimately, the Tribunal found that there was a genuine dispute regarding the quality of goods supplied, leading to the non-payment by the Corporate Debtor. The Petition was dismissed on the grounds that the dispute existed before the demand notice under Section 8 of the IBC was issued, making the initiation of insolvency proceedings inappropriate.

7. The Tribunal emphasized that the purpose of the Insolvency Code is not solely for debt recovery but for financial restructuring and corporate revival. It cautioned against treating insolvency proceedings as civil recovery suits and highlighted the economic considerations for petitioners, especially in cases of disputed debts.

8. The judgment concluded by dismissing the Petition and emphasizing the need for a thorough consideration of the implications and costs associated with initiating insolvency proceedings, particularly when disputes exist between the parties.