2017 (4) TMI 1510 - 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 - It has come on record that in the notice dated 25.12.2015 (Respondent- 1), the respondents have pointed out that the Applicant had received a sum of ₹ 49,28,200/- from them and the aforesaid fact has not been disputed by the Applicant. In the aforesaid notice, the respondent further pointed out that as per the work order, the work has not been completed and false assurances were given by the Applicant to complete the work. On the basis of the aforesaid dispute, the respondent asserted its right to appoint its Plant Manager as a sole arbitrator to decide the dispute However respondent afforded two weeks' time for completing the erection work and getting the wet scrubber properly commissioned from the date of receipt of the notice sent by speed post. Thereafter, the respondent initiated proceedings under Section 156(3) of the Criminal Procedure Code for registration of an FIR against the Applicant which has been dismissed by Judicial Magistrate on 11.04.2016. It is, therefore, evident that there is record of dispute, which is to the notice of the Applicant. The aforesaid record would be an impediment for initiation of insolvency process in view of the provisions of Section 9(5)(ii)(d) - the Application is liable to be dismissed. Application dismissed.

Summary

Issues:
1. Application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 to initiate insolvency process against the respondent.
2. Dispute regarding supply, erection, installation, and commissioning of wet scrubber system.
3. Allegations of nonperformance of contractual obligations by the Applicant.
4. Respondent's claim of losses due to nonsupply/substandard supply of material and delay in work completion.
5. Respondent's initiation of arbitration proceedings and pending Revision Petition.
6. Claim of the Applicant regarding operational debt and interest.
7. Respondent's contention on the functioning of the wet scrubber system and expenses incurred.

Analysis:
1. The Applicant, an Operational Creditor, filed an application under Section 9 of the Insolvency and Bankruptcy Code seeking to initiate insolvency proceedings against the respondent, a Corporate Debtor, for nonpayment of dues related to the supply and installation of a wet scrubber system at a glass manufacturing facility. The Applicant claimed to have completed the project satisfactorily, securing statutory clearances for the respondent's operations.

2. The dispute arose when the respondent alleged nonperformance and substandard supply of materials, leading to losses and delays. The respondent initiated arbitration proceedings and filed a petition under Section 156(3) of the Criminal Procedure Code, which was dismissed. The respondent contended that the Applicant failed to complete the work as per the contract, despite receiving a substantial portion of the payment.

3. The Tribunal noted that the respondent had paid a significant amount to the Applicant but claimed that the work was incomplete and deficiencies existed in the wet scrubber system installed by the Applicant. The respondent's expenses in running the plant on alternative fuels indicated dissatisfaction with the system's performance, supported by a report highlighting deficiencies in the equipment.

4. Considering the record of disputes, arbitration proceedings, and pending Revision Petition, the Tribunal found that the insolvency application was not maintainable under Section 9(5)(ii)(d) of the Code. The Applicant's argument regarding the statutory clearances obtained by the respondent after the system installation was refuted based on the respondent's increased operational expenses and the identified deficiencies in the equipment.

5. Ultimately, the Tribunal dismissed the insolvency application, citing the respondent's contentions regarding incomplete work, deficiencies in the installed system, and ongoing arbitration proceedings as valid reasons for rejecting the claim of operational debt. The Tribunal found in favor of the respondent, emphasizing the need for proper completion of contractual obligations and satisfactory performance of the installed equipment.