2020 (6) TMI 750 - 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 demand notice - HELD THAT - The primary conditions require to be fulfilled to file an application filed under section 9 of the Code, are that claim in question, there should be proper notice under the provisions of the Code on the other side ; debt should be prima facie established and it should not be in dispute - In the instant case, it is not in dispute that the demand notice dated November 18, 2019 issued by the petitioner, which was stated to have received by the respondent on December 6, 2019 was replied by the respondent vide its reply dated December 9, 2019 by bringing to the notice of the petitioner about the defective notice as well as pendency of the arbitration application as stated supra. The demand notice was issued on November 18, 2019 by the petitioner by, inter alia, stating that if the respondent dispute the existence or amount of unpaid operational debt of ₹ 8,44,49,943 provide the undersigned within ten days of the receipt of this letter, of the pending of the suit or arbitration proceedings in relation to such dispute filed before the receipt of this letter notice . The instant company petition was filed before expiry of 10 days' time from the date of the receipt of the copy of the demand notice. Therefore, the petitioner without giving any sufficient opportunity to the respondent has rushed to this Adjudicating Authority by filing the instant application by not disclosing the material facts of the case. The petitioner is supposed to advert to the arbitration application filed by the respondent. The instant company petition is filed with an intention to recover the disputed outstanding amount in question, which is not permissible under law - instant petition is disposed off by granting liberty to the parties to prosecute arbitration application, which is already pending, and to take next course of legal action, after arbitration. proceedings concluded

Summary

Issues Involved:
1. Default in payment by the corporate debtor.
2. Validity of the demand notice.
3. Existence of a pre-existing dispute.
4. Applicability of arbitration proceedings.
5. Determination of operational debt and initiation of CIRP.

Detailed Analysis:

1. Default in Payment by the Corporate Debtor:
The petitioner, M/s. Aparna Enterprises Ltd., sought to initiate CIRP against the respondent, M/s. SJR Prime Corporation P. Ltd., for a default amounting to ?8,44,49,943, which includes the principal amount and interest at 24% per annum. The petitioner supplied building materials to the respondent, who defaulted on payments amounting to ?6,94,84,388 as of the demand notice issued on November 18, 2019.

2. Validity of the Demand Notice:
The respondent contended that the demand notice issued was defective as it did not attach proof showing the amount owed. The demand notice was issued in forms 4 and 5, which require a copy of the invoice. The petitioner argued that the invoices were not enclosed due to their bulkiness but were acknowledged by the corporate debtor. The Tribunal noted that the demand notice dated November 18, 2019, was received by the respondent on December 6, 2019, and replied to on December 9, 2019.

3. Existence of a Pre-existing Dispute:
The respondent claimed the existence of a pre-existing dispute, citing pending proceedings before the XXVIII Additional City Civil Sessions Judge, Mayo Hall Unit, Mayo Hall, where the respondent had invoked the arbitration clause in the purchase order. The respondent alleged issues related to defects, quality, and short supplies, and claimed a counter amount of ?16,22,50,080. The petitioner argued that no arbitration proceedings had commenced and that the application under section 9 of the Arbitration and Conciliation Act, 1996, did not constitute the commencement of arbitration.

4. Applicability of Arbitration Proceedings:
The Tribunal noted that the respondent had filed an arbitration application seeking interim relief and that the petitioner had not agreed to any arbitration reference in any documents. The Tribunal emphasized that proceedings under section 9 of the Arbitration and Conciliation Act, 1996, do not amount to the commencement of arbitration, which only begins under section 21 of the Act.

5. Determination of Operational Debt and Initiation of CIRP:
The Tribunal referred to the Supreme Court's judgments in Mobilox Innovations P. Ltd. v. Kirusa Software P. Ltd. and Transmission Corporation of Andhra Pradesh Ltd. v. Equipment Conductors and Cables Ltd., highlighting that the IBC is not a substitute for a recovery forum and that the existence of undisputed debt is essential for initiating CIRP. The Tribunal found that the demand notice was issued before the expiry of the 10-day period for the respondent to respond, and the petition was filed with the intention to recover a disputed outstanding amount.

Conclusion:
The Tribunal disposed of the petition, granting liberty to the parties to prosecute the pending arbitration application and to take appropriate legal action post-arbitration. The Tribunal also acknowledged the economic crisis due to the pandemic and refrained from initiating CIRP on unjustified grounds.

Directions:
1. The parties are at liberty to prosecute the arbitration application pending before the XXVIII Additional City Civil Sessions Judge, Mayo Hall Unit, Mayo Hall, Bengaluru.
2. The petitioner is granted liberty to take appropriate legal action subject to the result of the arbitration case.
3. No order as to costs.