2020 (1) TMI 1223 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - HELD THAT - The learned Counsel for the Respondent is unable to show any document before the Notice under Section 8 was issued which would indicate that there was any dispute communicated by the Respondent to the Appellant, we find that the Adjudicating Authority erred in dismissing the Section 9 Application observing that it is deemed that there is dispute prior filing the instant petition . What was relevant was to see whether there was pre-existing dispute when Section 8 Notice was issued - There is nothing to show that there was any other reason why Section 9 Application was required to be rejected. The matter is remitted back to the Adjudicating Authority - The Respondent may, before Section 9 Application is admitted by the Adjudicating Authority, settle the dispute with the Appellant, if the Respondent so wants.

Summary

Issues:
- Appellant's claim as Operational Creditor against Impugned Order dated 11th January, 2019 passed by Adjudicating Authority.
- Dispute over outstanding dues, interest, and liability to pay under the Insolvency and Bankruptcy Code, 2016 (IBC).
- Respondent's counterclaim against the Appellant regarding financial obligations and old outstanding amounts.
- Continuous acknowledgments of dues by the Respondent through letters.
- Adjudicating Authority's error in dismissing the Section 9 Application based on the existence of a pre-existing dispute.

Analysis:
1. The Appellant filed an Appeal as an Operational Creditor against an Order passed by the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016. The dispute revolved around the Respondent's alleged failure to fulfill business arrangements related to manufacturing India Made Foreign Liquor (IMFL) and supplying Extra Neutral Alcohol (ENA) to the Appellant. The Appellant claimed outstanding dues of ?2,38,16,374, including interest, and sought recovery under Section 9 of the IBC.

2. The Appellant contended that despite the Respondent disputing the interest component, the total outstanding dues exceeded ?1 Lakh. The Respondent's responses, including a suit for arbitration, were cited as acknowledgment of the liability. The Appellant highlighted various correspondences and the Respondent's admission of liability, both in written replies and financial statements, to support the claim.

3. In response, the Respondent argued that there was no provision for interest in the Agreement and disputed the characterization of advances as debt payable. The Respondent counterclaimed that the Appellant failed to meet guaranteed offtake, leading to financial difficulties. The Respondent also contended that the amounts claimed were old and not actionable under the IBC.

4. The Appellant presented evidence of continuous acknowledgments of dues by the Respondent through letters, indicating a clear admission of liability. Despite the Respondent's attempts to contest certain aspects, the consistent acknowledgment of outstanding amounts, even in financial statements, supported the Appellant's claim.

5. The Appellate Tribunal found the Adjudicating Authority's dismissal of the Section 9 Application erroneous, emphasizing the need to assess the existence of a pre-existing dispute at the time of issuing the Section 8 Notice. The Tribunal concluded that the Respondent's acknowledgments and lack of evidence of a communicated dispute before the Notice warranted setting aside the Impugned Order and remitting the matter back to the Adjudicating Authority for further consideration.

6. The Tribunal directed the parties to appear before the Adjudicating Authority for potential dispute resolution before the Section 9 Application could proceed. If no settlement occurred, the Adjudicating Authority was instructed to admit the Application and issue necessary orders under the IBC. The Appeal was allowed, and no costs were awarded in the disposition of the case.