2018 (3) TMI 318 - Tri - Insolvency and Bankruptcy

Initiation of corporate insolvency process - Whether failure to send reply to the demand notice received by one of the directors of the Corporate Debtor is fatal? - Held that - Petitioner s firm has some control over the respondent through 3rd petitioner and it has come out in evidence that petitioner s firm is a party to the MOU above referred. It is a circumstance doubting the contact of Mr. Samrat Gupta who has got intimate friendship with the 3rd petitioner. So deliberate neglect on the side of him in not sending the reply to the demand notice received by him cannot be ruled out. Whether he has taken a decision reply on the basis of any decision approved by the board of directors of the respondent company is a question cannot be answered in this case. It requires larger evidence. Ld. Counsel also produced a copy of FIR at the time of final hearing. The respondent herein this case succeeded in establishing a case of certain control over the respondent company by the petitioner through the 3rd respondent. The unholy nexus between Mr. Samrat Gupta and the 3rd petitioner is probable to believe in the above said circumstance. In the above said peculiar circumstances we find failure on the side of the respondent in not sending reply is not fatal. This point is answered accordingly. Whether Corporate debtor succeeded in establishing existence of any dispute? - Held that - There exist a genuine dispute prior to the filing of the application and before the date of issuance of the demand notice. It appears to us that the contentions taken by the respondent are not feeble, mala fide or hypothetical. Existence of MOU in between the parties and pendency of Arbitral proceedings seen not mentioned in the application. Existence of MOU is an important document produced on the side of the respondent. It deals with sharing of profits and loss between Corporate Debtor and Operational Creditor. How it would be shared or not is not a question to be answered in the case in hand. The terms in between the parties as per MOU may have some relevancy in regards the settlement of the claim in hand. Non-mentioning the above said fact is therefore amount to suppression of material facts. Thus we are inclined to reject this application.

Summary

Issues Involved:
1. Failure to send reply to the demand notice.
2. Existence of any dispute and whether it is spurious, hypothetical, or illusory.

Detailed Analysis:

1. Failure to Send Reply to the Demand Notice:
The tribunal examined whether the failure of the Corporate Debtor to send a reply to the demand notice was fatal. The Corporate Debtor argued that the demand notice was received by Mr. Samrat Gupta, a director who had a close association with the Operational Creditor. The Corporate Debtor contended that Mr. Gupta acted without the Board's consent and did not inform other directors about the notice. Evidence, including Facebook pages showing the friendship between Mr. Gupta and the Operational Creditor, was presented to support this claim. The Corporate Debtor also highlighted that Mr. Gupta resigned and joined the Operational Creditor, further suggesting a conflict of interest. The tribunal found that the failure to send a reply was not fatal due to the peculiar circumstances and the probable collusion between Mr. Gupta and the Operational Creditor.

2. Existence of Any Dispute:
The tribunal considered whether the Corporate Debtor established the existence of a dispute and if such dispute was genuine or merely spurious, hypothetical, or illusory. The Corporate Debtor raised several contentions:
- Pending Arbitration: The Corporate Debtor argued that a portion of the claim was already under arbitration before the Calcutta Electric Traders Association, indicating a pre-existing dispute.
- Limitation Act: The Corporate Debtor claimed that part of the debt was barred by the Limitation Act, 1963, as it arose from invoices dated between 2012 and 2014.
- Memorandum of Understanding (MOU): The Corporate Debtor presented an MOU executed in 2014, indicating a partnership with the Operational Creditor. The MOU outlined profit and loss sharing, and the Corporate Debtor alleged breaches of this agreement by the Operational Creditor, leading to counterclaims for damages.
- Quality of Goods and Business Decisions: The Corporate Debtor contended that the goods supplied were of substandard quality, and the Operational Creditor made unauthorized business decisions, causing financial losses.

The tribunal referred to the Supreme Court's judgment in Mobilox Innovations (P.) Ltd. v. Kirusa Software (P.) Ltd., which emphasized that the adjudicating authority must reject an application under Section 9 of the Insolvency and Bankruptcy Code (IBC) if there is a plausible contention requiring further investigation and the dispute is not spurious or illusory. The tribunal found that the Corporate Debtor's contentions, supported by evidence such as the MOU, arbitration proceedings, and quality issues, were genuine and required further investigation. Hence, the tribunal concluded that a valid dispute existed.

Conclusion:
The tribunal rejected the application for initiating corporate insolvency proceedings against the Corporate Debtor, as the Corporate Debtor successfully established the existence of a genuine dispute. The tribunal noted that the contentions raised were not feeble or hypothetical and that there was suppression of material facts by the Operational Creditor. No order as to costs was made.