2017 (6) TMI 984 - AT - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - Application under Insolvency & Bankruptcy Code, 2016 - Held that - Requirement under sub-section (3)(c) of Section 9 while independent operational creditor to submit a certificate from the financial institution as defined in sub-section (4) of section 3 including Schedule Bank and public financial institution and like which is a safeguard prevent the operational creditor to bring a non-existence or baseless claim, similarly the adjudicating authority is required to examine before admitting or rejecting an application under Section 9 whether the dispute raised by corporate debtor qualify as a dispute as defined under sub-section (6) of Section 5 and whether notice of dispute given by the corporate debtor fulfilling the conditions stipulated in sub-section (2) of Section 8 of I&B Code, 2016. In the present case the adjudicating authority has acted mechanically and rejected the application under sub-section (5)(ii)(d) of Section 9 without examining and discussing the aforesaid issue. If the adjudicating authority would have noticed the provisions as discussed above and what constitute and as to what constitute dispute in relation to services provided by operational creditor then would have come to a conclusion that condition of demand notice under subsection (2) of Section 8 has not been fulfilled by the corporate debtor and the defence claiming dispute was not only vague, got up and motivated to evade the liability. For the reasons aforesaid we set aside the impugned order passed by adjudicating authority and remit the case to adjudicating authority for consideration of the application of the appellant for admission if the application is otherwise complete.

Issues Involved:
1. Definition and scope of "dispute" and "existence of dispute" under Section 9 of the Insolvency & Bankruptcy Code (I&B Code) 2016.
2. Compliance requirements under Sections 8 and 9 of the I&B Code.
3. The role of the Adjudicating Authority in admitting or rejecting applications under Section 9.
4. Examination of whether a genuine dispute exists.

Detailed Analysis:

1. Definition and Scope of "Dispute" and "Existence of Dispute":
The primary issue in this appeal is the interpretation of "dispute" and "existence of dispute" under Section 9 of the I&B Code. The appellant argued that merely disputing a claim cannot be a ground to reject an application unless there is a pending dispute. The judgment clarifies that the term "dispute" is inclusive and not exhaustive, covering all disputes related to debt, default, quality of goods or services, and breach of representation or warranty. The Adjudicating Authority must examine whether the notice of dispute genuinely raises a dispute within the parameters of the definitions of "debt" and "default."

2. Compliance Requirements under Sections 8 and 9 of the I&B Code:
The judgment emphasizes the procedural requirements under Sections 8 and 9. Section 8 mandates that an operational creditor must deliver a demand notice of unpaid debt to the corporate debtor. The corporate debtor must respond within ten days, either paying the debt or bringing to notice any dispute. Section 9 allows the operational creditor to file an application for initiating the corporate insolvency resolution process if no payment or notice of dispute is received within ten days. The operational creditor must furnish a copy of the invoice, an affidavit confirming no notice of dispute, a certificate from financial institutions, and other specified information.

3. Role of the Adjudicating Authority:
The Adjudicating Authority must admit or reject the application within fourteen days of receipt. The authority can admit the application if no notice of dispute is received and there is no record of dispute with the information utility. Conversely, the authority must reject the application if a notice of dispute is received. The judgment clarifies that the authority's role is limited to examining whether the notice of dispute genuinely raises a dispute and does not involve ascertaining the adequacy of the dispute.

4. Examination of Genuine Dispute:
The judgment discusses the necessity for the corporate debtor to raise a dispute with sufficient particulars. A mere dispute for the sake of dispute, unrelated to the specified conditions, cannot be grounds to reject an application. The Adjudicating Authority must ensure that the dispute raised is genuine and not a tool to evade liability. The onus to prove the existence of a dispute or debt shifts from the creditor to the debtor.

Conclusion:
The judgment concludes that the Adjudicating Authority erred in rejecting the application without examining the nature of the dispute. The authority acted mechanically without considering whether the dispute raised by the corporate debtor qualified as a genuine dispute. The case is remitted back to the Adjudicating Authority for reconsideration, emphasizing the need for a thorough examination of the dispute's nature and the compliance with procedural requirements under Sections 8 and 9 of the I&B Code. The appeal is allowed, and the impugned order is set aside.

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