2020 (1) TMI 1423 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor is a special purpose vehicle company incorporated for execution of project, that is, rehabilitation, strengthening and four laning of Srinagar to Banihal section in the State of J K - Appellant claimed that part payment was due and the Appellant sent Notice under Section 8 of IBC on 21st January, 2019 referring to the invoices due and outstanding and sought to recover the dues for services rendered - HELD THAT - The Adjudicating Authority erred in concluding that because Operational Creditor had moved the MSME Authorities, it showed pre-existing dispute. The Appellant had a relief open under the MSME Act and only because the Appellant moved the Authority under MSME Act, it does not mean that there is a pre-existing dispute. The dispute raised by the Appellant before the MSME was that it had dues to recover and that the Respondent has not paid. This by itself does not mean that there is pre-existing dispute as far as the Respondent is concerned. The context of the word dispute in Section 18 takes colour from Section 17 of MSME Act. It is different from context of Section 5(6) read with Section 8 of IBC - At present, nothing is shown that there was any pre-existing dispute raised by the Respondent with regard to the services rendered by the Appellant. When this is so, only because the Appellant went to the MSME Authorities was no ground for the Adjudicating Authority to reject the Application under Section 9. A further communication from the Authority has been placed on record by the Appellant at Page 89. Although the subsequent letter shows that the conciliation proceedings had yet to start. The matter remitted to the Adjudicating Authority - Adjudicating Authority will admit the Section 9 Application and pass further necessary orders under the provisions of IBC.

Summary

Issues:
- Interpretation of pre-existing dispute under Section 5(6) of IBC
- Relevance of engagement letter and invoices in determining dispute
- Impact of moving to MSME Authorities on Section 9 Application

Interpretation of Pre-existing Dispute under Section 5(6) of IBC:
The Appellant, an MSME, filed a Section 9 Application under the IBC against the Corporate Debtor, claiming outstanding dues for project monitoring services. The Respondent argued that since the Appellant approached the MSME Council for conciliation before sending the Section 8 Notice, a pre-existing dispute existed, thus the Section 9 Application should be rejected. The Adjudicating Authority agreed, citing the initiation of arbitration proceedings and the MSME Council's involvement. However, the Appellate Tribunal disagreed, emphasizing that the mere act of seeking relief under the MSME Act does not automatically indicate a pre-existing dispute under Section 5(6) of IBC.

Relevance of Engagement Letter and Invoices in Determining Dispute:
The Appellant contended that no disputes were raised by the Respondent regarding the invoices raised for services rendered, even after the Notice under Section 8 of IBC. The Respondent argued that discrepancies existed between the engagement letter terms and the invoiced amounts. The Adjudicating Authority highlighted the involvement of the MSME Council and ongoing arbitration proceedings to support the existence of a dispute. However, the Appellate Tribunal stressed that the Respondent's failure to raise specific disputes related to the invoices was crucial in determining the absence of a pre-existing dispute.

Impact of Moving to MSME Authorities on Section 9 Application:
The Respondent relied on TDS deductions and subsequent financial statements to challenge the Appellant's claim. The Adjudicating Authority considered the involvement of the MSME Council as indicative of a pre-existing dispute. In contrast, the Appellate Tribunal clarified that seeking relief under the MSME Act does not inherently establish a dispute under IBC. The Tribunal emphasized the importance of the Respondent's failure to raise objections to the invoices as a key factor in determining the validity of the Section 9 Application. Ultimately, the Tribunal set aside the Impugned Order, allowing the appeal and remitting the matter back to the Adjudicating Authority for further proceedings under the IBC.