2018 (6) TMI 348 - AT - Insolvency and Bankruptcy

Corporate insolvency procedure - whether there is existence of dispute much prior to issuance of Demand Notice under Section 8(1)? - Held that - There is an existence of dispute since prior to issuance of Demand Notice under Section 8(1). For the said reason the Corporate Debtor stopped payment to Operational Creditor for not completing the job and for sub-standard work. In fact the Corporate Debtor imposed penalty on the Operational Creditor . In the aforesaid circumstances, we are of the view that the application under Section 9 of the I&B Code was not maintainable. The Adjudicating Authority though noticed the aforesaid existence of dispute but having failed to appreciate, we have no other option but to set aside the impugned order.

Summary

Issues:
1. Failure to serve notice under Section 8(1) on the Corporate Debtor.
2. Existence of dispute prior to the issuance of Demand Notice under Section 8(1).

Analysis:
1. The respondent, Technofac Contracts Pvt. Ltd., filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, against Yatri Vihar Hospitality Pvt. Ltd. The Adjudicating Authority admitted the application, declared moratorium, and called for the appointment of an Insolvency Resolution Professional. The appellant, a shareholder/Director of the Corporate Debtor, appealed on the grounds of no notice served under Section 8(1) and the existence of a dispute prior to the demand notice.

2. The Adjudicating Authority rejected the first objection based on the issuance of the Demand Notice via Speed Post, although with a wrong pin code. The existence of dispute was raised by the Corporate Debtor, citing communication history between the parties. The appellant argued that the Operational Creditor abandoned work in 2014, and despite sub-standard work, the application under Section 9 was admitted.

3. The appellant highlighted emails indicating the Operational Creditor's failure to complete work on time and sub-standard work quality. The Corporate Debtor allocated work for hotel construction, with subsequent emails from 2013 to 2015 showcasing issues and penalties imposed on the Operational Creditor.

4. The respondents did not dispute the receipt of the emails and acknowledged outstanding payments. The Adjudicating Authority noted a certificate praising the Operational Creditor's work quality, although deemed it a general document for promotional purposes.

5. The Tribunal found an existence of dispute predating the Demand Notice under Section 8(1), as evidenced by the Corporate Debtor's actions of withholding payment and imposing penalties. Consequently, the application under Section 9 was deemed not maintainable, leading to the setting aside of the impugned order.

6. The Tribunal nullified all actions taken pursuant to the impugned order, releasing the Corporate Debtor from insolvency proceedings. The Interim Resolution Professional's fees were to be determined and paid by the Corporate Debtor. The appeal was allowed without costs, enabling the Corporate Debtor to resume independent operations immediately.