2018 (9) TMI 1610 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - whether there is a pre-existing dispute between the parties before issuance of a demand notice? - Held that - In the case on hand, first of all no notice of dispute has been issued by the respondent. Even if no notice of dispute is issued this Adjudicating Authority has to find out whether there was a pre-existing dispute between the parties before issuance of a demand notice. The suit filed by the respondent against M/s. Sumitomo Electronic Industries Ltd. and the petitioner questioning the termination of the Distributionship Agreement dated 01.04.2016 that exists between the petitioner and the respondent without assigning any reasons, by issuing email dated 07.04.2017 by the Sumitomo Electronic Industries Limited and for restraining the Sumitomo Electronic Industries Limited and respondent herein from giving distribution of splicing machines to M/s. Invas Technologies Pvt. Ltd. and M/s. Candid Optronix Pvt. Ltd. Senior Civil Judge granted temporary injunction directing M/s. Sumitomo Electric Industries Ltd. and the respondent herein to supply the spare parts of the splicing machines which were already supplied on the same terms and conditions and on condition of paying the costs of the spare parts, accessories etc. A perusal of the aforesaid order passed by the Senior Civil Judge and the counter in the above said applications clinchingly show that the dispute that is pending in the City Civil Court or in the Hon ble High Court of judicature at Hyderabad has nothing to do with the operational debt claimed in this petition. The operational debt claimed in this petition is pertaining to the period upto 30.03.2017 and during the subsistence of the Distributionship Agreement. The dispute that is pending in the Civil Court pertain to the termination of the Distributionship Agreement dated 01.04.2016 and the consequential reliefs. It is not even the case of the respondent that on account of the termination of the Distributionship Agreement he has not paid the operational debt. Therefore, the dispute in Civil Court do not relate to the operational debt that is claimed in this petition. The dispute that is pending has nothing to do with the operational debt claimed in this petition. Therefore, there does not exist dispute relating to operational debt claimed in this petition prior to the issuance of demand notice. The petition is complete in all respects. Petition deserves to be admitted and it is accordingly admitted.

Summary

Issues Involved:
1. Validity of Demand Notice
2. Territorial Jurisdiction
3. Arbitration Clause
4. Pre-existing Dispute
5. Appointment of Interim Resolution Professional
6. Declaration of Moratorium

Issue-wise Analysis:

1. Validity of Demand Notice:
The respondent argued that the Demand Notice in Form 3 was not in accordance with Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority Rules, 2016). The tribunal referred to Rule 5, which requires the notice to be signed by an authorized person of the Operational Creditor. The notice in this case was signed by Kan Kinoshita, the President and Director of the Operational Creditor. The tribunal cited the Supreme Court decision in Macquarie Bank Limited v. Shilpi Cable Technologies Ltd., which held that a notice sent on behalf of an operational creditor by a lawyer is valid. Therefore, the tribunal found the Demand Notice to be in order.

2. Territorial Jurisdiction:
The respondent contended that only the courts in New Delhi had exclusive jurisdiction as per the Distributorship Agreement. However, the tribunal referred to Section 60(1) of the Insolvency and Bankruptcy Code, which states that the National Company Law Tribunal (NCLT) having territorial jurisdiction over the place where the registered office of the corporate person is located has jurisdiction. Since the registered office of the Corporate Debtor is in Hyderabad, the NCLT Hyderabad has territorial jurisdiction. The tribunal dismissed the respondent's contention on jurisdiction.

3. Arbitration Clause:
The presence of an arbitration clause in the Distributorship Agreement was argued to be an impediment to initiating the Corporate Insolvency Resolution Process (CIRP). The tribunal clarified that the overriding effect given to the provisions of the Insolvency and Bankruptcy Code under Section 238 means that the arbitration clause does not prevent the initiation of CIRP.

4. Pre-existing Dispute:
The respondent claimed that a civil dispute was pending before the City Civil Court, Hyderabad, and the High Court of Judicature at Hyderabad, which questioned the termination of the Distributorship Agreement. The tribunal noted that the dispute in the civil court pertained to the termination of the agreement and not the operational debt claimed in the petition. The operational debt was for the period up to 30.03.2017, during the subsistence of the agreement. The tribunal found that the civil dispute did not relate to the operational debt claimed and thus did not constitute a pre-existing dispute.

5. Appointment of Interim Resolution Professional:
The Operational Creditor did not propose the name of an Insolvency Professional to act as Interim Resolution Professional. Therefore, the tribunal, following guidelines from the Insolvency and Bankruptcy Board of India, proposed the name of Mr. Kranthi Kumar Kedari to act as Interim Resolution Professional under Section 16(3)(a) of the Code.

6. Declaration of Moratorium:
Upon admission of the application under Section 9, the tribunal declared a moratorium under Section 13(1)(a) prohibiting:
a. Institution or continuation of suits or proceedings against the corporate debtor.
b. Transferring or disposing of any assets of the corporate debtor.
c. Actions to foreclose or enforce any security interest.
d. Recovery of any property occupied by the corporate debtor.

The moratorium does not apply to transactions notified by the Central Government or the supply of essential goods or services to the Corporate Debtor. The order of moratorium shall be in force until the completion of the Corporate Insolvency Resolution Process.

Conclusion:
The tribunal admitted the petition for initiating the Corporate Insolvency Resolution Process against the Corporate Debtor and appointed an Interim Resolution Professional. The tribunal also declared a moratorium as required under the Insolvency and Bankruptcy Code.