2017 (7) TMI 264 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - Insolvency and Bankruptcy Code, 2016 - notice of dispute - Held that - A notice of the dispute was sent by the corporate debtor by way of reply to the demand notice. It is stated in the reply that as per the books/ledger account of the petitioner for the financial year ending 31.03.2016, the opening balance was ₹ 58,452/-, which was paid on 17.11.2015. The total purchases made during the said year from the petitioner was ₹ 1,21,80,347/-, but it is explained that after adjustments and payments, debit note was issued for a total amount of ₹ 65,53,043/-. There is also reference to the debit notes in the next financial year. If the respondent has prepared forged and fabricated record of its accounts and the debit notes in order to create a defence in the proceeding under the Code, that would be a matter of serious concern, for which the petitioner can always apply for prosecuting the respondent at the appropriate stage on determination of the dispute by a civil court. But to adjudicate upon the issue of forgery of the record is the handicap of the Adjudicating Authority in the summary jurisdiction. The present is thus not a case in which it can be safely inferred that no notice of dispute was received by the operational creditor for entitling the petitioner to an order of admission under clause (i) of sub-section 5 of Section 9 of the Code. Having said so, there is no alternate except to hold that the notice of dispute has been received by the operational creditor and, therefore, the petition deserves to be rejected.

Summary

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Validity of the demand notice and the respondent's reply.
3. Existence of a dispute regarding the operational debt.
4. Adjudicating Authority's jurisdiction in summary proceedings.

Issue-wise Analysis:

1. Initiation of CIRP under Section 9 of the Insolvency and Bankruptcy Code, 2016:
The petition was filed by the Operational Creditor to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor under Section 9 of the Insolvency and Bankruptcy Code, 2016. The petitioner, a partnership firm, claimed that the Corporate Debtor defaulted on payments for fabric purchases amounting to ?84,27,531/-, with additional interest, totaling ?1,06,81,554.44Ps.

2. Validity of the Demand Notice and the Respondent's Reply:
The demand notice, as required under Section 8 of the Code, was served on the respondent on 12.04.2017 and was received on 13.04.2017. The respondent replied on 24.04.2017, which was dispatched on 26.04.2017, beyond the 10-day period stipulated by the Code. Despite this, the Tribunal held that the reply could not be disregarded as it was available when the application was filed.

3. Existence of a Dispute Regarding the Operational Debt:
The Tribunal examined whether the dispute raised by the respondent was valid under Section 9(5)(ii)(d) of the Code. The respondent contended that the debt was disputed based on debit notes issued for expenses incurred due to late delivery and rejected fabric. The Tribunal noted that the petitioner’s claim was supported by 72 invoices, but the respondent provided ledger accounts and debit notes indicating disputes over certain amounts. The Tribunal found that the disputes could not be summarily adjudicated and required a detailed examination.

4. Adjudicating Authority's Jurisdiction in Summary Proceedings:
The Tribunal emphasized its limited jurisdiction in summary proceedings under the Code, which does not extend to resolving complex factual disputes. It acknowledged that the respondent’s claims of forged debit notes and manipulated records could not be conclusively determined within its summary jurisdiction. The Tribunal suggested that such issues could be pursued in a civil court for detailed adjudication.

Conclusion:
The Tribunal concluded that the operational creditor had received a notice of dispute from the corporate debtor, thus precluding the admission of the petition under Section 9(5)(i) of the Code. Consequently, the petition was rejected. The Tribunal noted its limitations in addressing complex factual disputes within the summary jurisdiction of the Code and advised the petitioner to seek recourse in a civil court if necessary.