2017 (11) TMI 1944 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - service of notice - HELD THAT - Accrual of interest during a short period of a month or two will exceed 39 lacs. The claim of interest cannot therefore accrue solely from the three invoices, in question, as claimed in the application (Form-5). That apart there is no document to show that the six debit notes unilaterally sent by the applicant towards interest were acknowledged by the respondent. Respondent has disputed the claim inter alia with the contention that no ledger account was filed along with original application nor there was any material to demonstrate the previous transactions nor were there any agreement and/or understanding in support of payment of interest. In this scenario the amount of interest, as specifically claimed in the application (Form-5), is not free from dispute. It is also pertinent to mention here that respondent company has filed relevant ledger accounts revealing previous transactions between the parties, which were not disclosed by the applicant at the first instance. It is seen from the reply and rejoinder that there had been business transactions between the parties comprised of reciprocal demands on account of sales and purchases made inter-se, since the year 2010. Litigants must observe total clarity and candour in their pleadings as wheels of justice can move only on true facts. However the applicant has initiated the application without full disclosure of facts at the first instance - In view of the aforementioned particulars the claim of reciprocal transactions on account of sales and purchases made inter-se, between the parties cannot be overlooked. Accordingly, the dispute raised by the Respondent on the claim of principle amount and interest cannot be termed as sham and illusory. Admittedly there has been no admission of the claimed operational debt by the respondent. On the contrary there has been a counter-claim by the respondent. It is further seen that there has been reciprocal transactions between the parties long since the year 2010 and dispute certainly exists in the facts of the case much prior to the issuance of notice under Section 8 of the Code. The claim of dispute suggests the need of elaborate investigation. It is reiterated that existence of dispute in the present case cannot be ruled out. The respondent has raised dispute with sufficient particulars. Hence, the amount of claim raised by the applicant clearly falls within the ambit of disputed claim. Application dismissed.

Summary

Issues Involved:
1. Jurisdiction of the Tribunal.
2. Validity of the Demand Notice under Section 8 of the Insolvency and Bankruptcy Code, 2016.
3. Existence of a Dispute between the parties.
4. Entitlement of the Applicant to claim the principal amount and interest.
5. Reciprocal Transactions and Alleged Manipulation of Accounts.

Issue-Wise Detailed Analysis:

1. Jurisdiction of the Tribunal:
The Tribunal established its jurisdiction over the matter as the registered office of the respondent corporate debtor is located in Delhi. Hence, the Tribunal has territorial jurisdiction to adjudicate the application for initiation of Corporate Insolvency Resolution Process (CIRP) under Section 60(1) of the Insolvency and Bankruptcy Code, 2016.

2. Validity of the Demand Notice under Section 8 of the Insolvency and Bankruptcy Code, 2016:
The Tribunal found that the statutory demand notice dated 13.06.2017 issued under Section 8 of the Code was defective. The notice was issued by an Advocate without any indication of authorization to act on behalf of the operational creditor, nor was the Advocate's position with the applicant company specified. The format of the notice did not strictly comply with Form 3 as required by the Code. The Tribunal referenced judgments from the National Company Law Appellate Tribunal (NCLAT) which held that an Advocate cannot issue a notice under Section 8 without proper authorization. Consequently, the defective notice led to the rejection of the application.

3. Existence of a Dispute between the parties:
The Tribunal noted that the respondent raised objections regarding the existence of a dispute over the claimed amount. The respondent argued that there was no agreement for the payment of interest and that the transactions were part of a mutual, running account with reciprocal demands. The Tribunal found that there were indeed reciprocal transactions and disputes over the amounts due, which were not disclosed by the applicant initially. The existence of a dispute was further evidenced by a closure report from a previously lodged FIR, which indicated that the matter was of a civil nature and involved inter-se transactions between the parties.

4. Entitlement of the Applicant to claim the principal amount and interest:
The applicant claimed a principal amount of ?1,08,13,469/- and interest of ?84,77,759/- based on three invoices and six debit notes. The Tribunal found that the claimed interest amount was not substantiated, as it was disproportionately high given the short duration between the issuance of the invoices and the debit notes. Additionally, there was no evidence that the respondent acknowledged the debit notes. The Tribunal concluded that the interest claim was not free from dispute and that the applicant had not provided full disclosure of the transactions.

5. Reciprocal Transactions and Alleged Manipulation of Accounts:
The respondent provided evidence of reciprocal transactions and alleged that the applicant had manipulated accounts and concealed facts. The Tribunal noted that the applicant had not disclosed previous transactions and that there were ongoing disputes regarding the amounts due. The Tribunal emphasized that it was not the appropriate forum to adjudicate the merits of the claims and counterclaims, which required a detailed investigation. The existence of reciprocal transactions and disputed claims indicated that the matter was not suitable for resolution through the CIRP.

Conclusion:
The Tribunal rejected the application for initiation of the Corporate Insolvency Resolution Process against the respondent company due to the defective demand notice and the existence of a genuine dispute between the parties. The Tribunal clarified that its observations should not prejudice the applicant's rights before any other forum and ordered that copies of the judgment be served to the parties.