2021 (1) TMI 1153 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor defaulted in paying the claim despite after receipt of Section 8 notice served upon the Corporate Debtor - Operational creditors - suppression of documents seminal to decide the penalty and correspondence exchanged long prior to issuing section 8 notice - it is claimed that the amount retained by the Corporate Debtor is largely on account of penalty against the short supplies, and thus cannot be released to Operational Creditors - pre-existing between the parties before issual of Section 8 notice or not. HELD THAT - It is an admitted fact that from the Operational Creditor side that the Corporate Debtor replied to its Section 8 notice dated 12.04.2020, on 21.04.2020 i.e. within 10 days from the date of receipt of notice, in the reply, the Corporate Debtor has again disputed that the Operational Creditor is liable to pay penalty, therefore it could not be decided who is liable to pay whom, because if the penalty is more than the unpaid invoice amount retained by the Corporate Debtor, the Operational Creditor would be liable to pay the penalty remained due and payable by the Operational Creditor - the Operational Creditor counsel has filed rejoinder setting up a new case that since the Performance Bank Guarantee has not been retained, it is to be construed that no dues are outstanding against the Operational Creditor, therefore whatever defence taken up by the Corporate Debtor, the operational creditor says, could not be considered as dispute is in existence before receipt of Section 8 notice by the Corporate Debtor. On record it is evident that final bill has not been prepared, penalties not discounted, the operational creditor has not deputed its authorized representative for finalization of final bill, therefore due itself cannot be assumed unless final bill is prepared, therefore question of default will not arise, in any event, dispute is preexisting between the parties as on the date section 8 notice the corporate debtor received, therefore it is a clear case hit by pre-existing dispute. From the Operational Creditor side contention is dispute is frivolous, from the Corporate Debtor side contention is dispute is pre-existing - the Petition shall be dismissed on the ground that Petition is hit by pre-existing dispute - petition dismissed.

Summary

Issues Involved:
1. Default in payment by Corporate Debtor.
2. Pre-existing dispute regarding penalties for short supply of coal.
3. Admissibility of the Company Petition under Section 9 of the Insolvency and Bankruptcy Code (IBC).

Issue-wise Detailed Analysis:

1. Default in Payment by Corporate Debtor:
The Operational Creditor filed a Company Petition under Section 9 of the IBC against the Corporate Debtor, alleging a default in payment amounting to ?11,21,44,047.40 as of 29.02.2019. The contract between the parties was for the transportation of coal and included specific terms for billing and payment. The Corporate Debtor admitted to owing ?7,25,91,090.40 but disputed the higher amount claimed by the Operational Creditor.

2. Pre-existing Dispute Regarding Penalties for Short Supply of Coal:
The Corporate Debtor raised a defense that the Operational Creditor failed to meet the contractual obligation of supplying 2.2 rakes of coal per day, leading to a penalty clause being invoked. The Corporate Debtor communicated multiple times with the Operational Creditor regarding the shortfall and the resulting penalties, which were to be deducted from the amounts payable. The Corporate Debtor argued that the retained amount was for penalty adjustments and not an admission of default. The Operational Creditor did not adequately address these penalties or send a representative to finalize the bill, leading to a pre-existing dispute.

3. Admissibility of the Company Petition under Section 9 of IBC:
The Tribunal considered whether a pre-existing dispute existed before the issuance of the Section 8 notice. The Corporate Debtor provided evidence of continuous communication regarding the shortfall and penalties since 2018, well before the Section 8 notice was issued in 2020. The Tribunal noted that the final bill had not been prepared due to the unresolved penalties, and thus, the default could not be conclusively determined. The Tribunal referenced the Supreme Court decision in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., which held that disputes requiring further investigation cannot be decided under the IBC.

Conclusion:
The Tribunal found that there was a pre-existing dispute regarding the penalties for short supply of coal, which was communicated well before the issuance of the Section 8 notice. As the dispute was genuine and pre-existing, the Company Petition was dismissed as misconceived. The presence of unresolved issues and the need for further investigation precluded the admission of the petition under the IBC.