2017 (9) TMI 435 - Tri - Insolvency and Bankruptcy

Proceedings under Insolvency & Bankruptcy Code, 2016 - Held that - Section 5(6) of the Insolvency & Bankruptcy Code, dispute includes a suit or arbitration proceeding relating to -(a) the existence of the amount of debt; (b) the quality of goods or service; (c) the breach of a representation or warranty. The fact that the quality of service required to be performed by the applicant under the work order is in dispute is evidenced by the termination of the contract by the respondent. This has consequently given rise to a dispute, inter alia, with regard to withholding of the running account bills, retention monies and with regard to bank guarantee. Section 8(2)(a) of the I.B. Code is ultimately concerned with the existence of a dispute with regard to alleged operational debt, which dispute has been raised by the applicant itself in its said notice under section 21 and in its application filed under sections 9 and 11 of the Arbitration & Conciliation Act, 1996. Therefore, the applicant clearly could not have filed and consequently cannot maintain the said applications. On the above basis, it is clear that the application filed by the Operational Creditor for initiation of Corporate Insolvency process deserves to be dismissed as non-maintainable.

Issues Involved:
1. Compliance with statutory requirements under the Insolvency and Bankruptcy Code, 2016 (I&B Code).
2. Existence of a pre-existing dispute.
3. Authority of the petitioner to initiate Corporate Insolvency Resolution Process (CIRP).

Issue-wise Detailed Analysis:

1. Compliance with statutory requirements under the Insolvency and Bankruptcy Code, 2016 (I&B Code):
The Operational Creditor filed the application under section 9 of the I&B Code, claiming an amount of ?77,96,40,215/-. The statutory requirements were met by issuing a demand notice dated 17th April 2017, as per section 8(1) of the I&B Code. The Corporate Debtor received the notice but did not respond with a notice of dispute under section 8(2). The petitioner provided detailed transactions, bank statements, RA bills, and other supporting documents. The petitioner also filed an affidavit under section 9(3)(b) confirming the non-receipt of any dispute notice from the Corporate Debtor.

2. Existence of a pre-existing dispute:
The Corporate Debtor argued that the application should be dismissed due to pre-existing disputes, citing an application filed under section 11 of the Arbitration and Conciliation Act, 1996, before the Orissa High Court. The Corporate Debtor contended that the disputes were complex and could not be resolved under the summary jurisdiction of section 9 of the I&B Code. The contract between the parties required complete project execution before any payment could be made, and partial work was not sufficient for payment. The Corporate Debtor also highlighted that the petitioner had already invoked arbitration for the same disputes, indicating a pre-existing dispute. The Tribunal noted that the disputes arose from the contract and the petitioner had sought arbitration, confirming the existence of disputes before the demand notice.

3. Authority of the petitioner to initiate Corporate Insolvency Resolution Process (CIRP):
The Corporate Debtor challenged the authority of Mr. Satish Tiwari, who verified the application on behalf of the petitioner. The Tribunal referred to a previous decision (ICICI Bank Ltd. vs. Palogix Infrastructure (P.) Ltd.) that emphasized the need for specific authorization to initiate CIRP. The petitioner provided a Board Resolution authorizing Mr. Tiwari to sign documents but not specifically to initiate CIRP. The Tribunal concluded that Mr. Tiwari lacked the specific authorization required to present the petition under section 9 of the I&B Code.

Conclusion:
The Tribunal found that there was a pre-existing dispute between the parties, which was pending before the Arbitral Tribunal. The application under section 9 of the I&B Code was also filed without specific authorization from the Board of Directors of the Operational Creditor. Consequently, the application was dismissed as non-maintainable.

Order:
The application filed by the Operational Creditor under section 9 of the Insolvency and Bankruptcy Code, 2016, is rejected. Certified copies of the order are to be sent to both the Applicant/Operational Creditor and the Corporate Debtor.

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