2017 (10) TMI 1548 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - present application filed by Operational creditor on grounds of their recoverable debt - invocation of arbitration clause - HELD THAT - This Bench is of the opinion that though the Operational Creditor has stated that there is no dispute with respect to the demand of the alleged outstanding balance, there exists a prior dispute primarily on account of dissatisfaction about proper implementation of the plant and the produce apart from non-execution of the tests under the GTR. It is however beyond the scope and jurisdiction of this Tribunal to appreciate the evidentiary value of the dispute. What is required to be assessed is that the dispute in the present proceedings is not patently false or a moonshine defence, raised only to resist initiation of any Insolvency Resolution Process against them. In the case at hand, various objections were taken prior to initiation of the procedure under the Code, some of which may have been redressed and some still not to the satisfaction of the Corporate Debtor. A company that sets up a plant involving a huge expense as in the present case does so with the hope of achieving a faultless product. The existing disputes with respect to the alleged deficiencies in respect of services rendered in the implementation of the project can only be adjudicated in another form, which we are informed is vide initiation of arbitration proceedings. This Bench is of the opinion that it is not to examine the merits of the dispute. Since the defence is not spurious or set up to resist the Resolution Process, and existed prior to the issuance of the notice to the Corporate Debtor, the petition is liable to be Rejected. Petition dismissed.

Summary

Issues:
1. Initiation of Corporate Insolvency Resolution Process under Section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Disputed liability regarding outstanding debt and non-payment issues.
3. Dispute resolution through arbitration clause provided in the agreement.

Analysis:
1. The Respondent, engaged in fertilizer business, entered an agreement with the Petitioner for a project involving erection and commissioning. The Petitioner sought initiation of Corporate Insolvency Resolution Process under Section 9 of the Code due to an outstanding debt of &8377; 81,48,130.56. The Respondent disputed the liability, citing various inadequacies and non-compliance issues in project implementation, leading to a dispute on recoverable debt.

2. The Respondent contended that prior disputes existed regarding the project's implementation, including non-adherence to contract terms, inadequate performance, and non-supply of essential machinery. The Respondent highlighted defects in output quality, delays, and failures in achieving project milestones. They also raised concerns about the non-renewal of the Bank Guarantee and delay in project completion, leading to extensive losses.

3. The Operational Creditor argued that delays were due to the Respondent's civil works responsibility and emphasized non-payment of service and other taxes as the primary issue. However, the Respondent disputed the Operational Creditor's claims and sought arbitration for counter recovery of damages. The Tribunal acknowledged the existence of disputes and emphasized that the resolution of alleged deficiencies should be addressed through arbitration proceedings, as the Tribunal's scope was limited to assessing the validity of disputes in insolvency proceedings.

4. After a detailed analysis of the contentions from both parties, the Tribunal concluded that the disputes raised by the Respondent were genuine and predated the insolvency notice. As the disputes were not frivolous and existed prior to the initiation of the insolvency resolution process, the Tribunal rejected the petition for initiating the Corporate Insolvency Resolution Process. The Tribunal highlighted the importance of addressing disputes through appropriate forums like arbitration for a comprehensive resolution.

5. The Tribunal disposed of the petition, emphasizing that the existing disputes required a thorough adjudication beyond the Tribunal's jurisdiction. The decision to reject the petition was based on the acknowledgment of genuine disputes and the need for a separate platform, such as arbitration, to resolve the complex issues raised by the parties. No costs were awarded in the disposition of the case.