2018 (8) TMI 1268 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - failure to pay dues against purchase of material - Held that - A bare perusal of the e-mails clearly shows that there is a pending dispute regarding defects and delay caused in supply of goods between the parties since October, 2015, which is much before the issuance of demand notice by applicant. In the present case the respondent has raised evidence of an existing dispute along with sufficient particulars. The case records reveal that there was existence of dispute much prior to the issuance of notice under Section 8 of the Code. The claim of the dispute suggests the need for elaborate investigation. The moment there is existence of such a pre-existing dispute, the corporate debtor gets out of the clutches of the Code. In the facts of the case we are satisfied that a dispute truly exists much prior to the issuance of Section 8 notice. Not only there is a pre-existing dispute but also the respondent company in its reply to the Section 8 notice has clearly communicated to the applicant the fact of existence of dispute . Section 9(5)(ii)(d) of the Code provides that adjudicating authority shall reject the application if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. Present petition fails and the same is rejected.

Summary

Issues:
1. Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 for initiation of Corporate Insolvency Resolution Process.
2. Existence of a dispute between the operational creditor and the corporate debtor regarding pending payments and quality of goods/services supplied.

Issue 1: Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 for initiation of Corporate Insolvency Resolution Process:

The case involves an application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016, seeking the initiation of Corporate Insolvency Resolution Process against a company claimed to be the corporate debtor. The applicant, an operational creditor, had supplied paints/coatings to the respondent company against purchase orders issued in 2015 and 2016, amounting to ?72,28,213. The respondent failed to make the payment, leading the applicant to issue a notice under Section 8 of the Code, claiming a total amount due of ?96,79,666 as of 23.03.2018. The respondent replied raising objections, citing disputes regarding the quality of goods supplied and delays since October 2015, before the demand notice was issued.

Issue 2: Existence of a dispute between the operational creditor and the corporate debtor regarding pending payments and quality of goods/services supplied:

The respondent company raised objections regarding pending disputes between the parties, including complaints about the quality of paints supplied by the applicant. The Tribunal noted that the definition of 'dispute' under the Code includes matters related to the amount of debt, quality of goods/services, or breach of representation/warranty. It was established that a dispute existed between the parties, predating the demand notice, requiring further trial/investigation. The respondent had communicated the existence of a dispute prior to the issuance of the Section 8 notice, as evidenced by emails and correspondences dating back to October 2015. The Tribunal emphasized that the existence of a genuine dispute, not a spurious or hypothetical one, warranted the rejection of the application under Section 9(5)(ii)(d) of the Code.

In conclusion, the Tribunal rejected the application for the initiation of Corporate Insolvency Resolution Process, citing the existence of a pre-existing dispute between the operational creditor and the corporate debtor, as evidenced by communications and objections raised by the respondent company. The judgment emphasized the need for a genuine dispute to reject such applications under the provisions of the Insolvency and Bankruptcy Code, 2016.