2019 (1) TMI 1252 - Tri - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution Process - pre-existence of a dispute - Held that - In the present case notice under Section 8 was duly replied within the period prescribed by bringing to the notice of the operational creditor the existence of dispute. There is substance and plausible contention in the replies and notices of the respondent, which necessitates investigation. In fact, the claim of loss and the prayer for its recovery are sub-judice in a court of law. The provisions of Section 9 (5) (ii) (d) of the Code clearly mandates that Adjudicating Authority shall reject the application when notice of dispute has been received by the applicant operational creditor. In the line of aforesaid provisions of the Code held that the moment there is existence of a dispute the operational creditor gets out of the clutches of the Code. For the reasons stated above the application fails and therefore the same is rejected.

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Existence of a pre-existing dispute between the operational creditor and the corporate debtor.
3. Validity of the full and final settlement claim by the operational creditor.
4. Impact of the resignation and alleged non-compliance with the employment contract on the financial loss claimed by the corporate debtor.
5. Admissibility of the application under Section 9 in light of the pending civil suit and counterclaims.

Issue-wise Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016:
The applicant, claiming to be the operational creditor, filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, seeking the initiation of CIRP against the respondent company. The tribunal noted that the application was filed following the issuance of a demand notice under Section 8 of the Code, which was duly replied to by the respondent.

2. Existence of a pre-existing dispute between the operational creditor and the corporate debtor:
The tribunal emphasized that the existence of a dispute is a critical factor in determining the admissibility of an application under Section 9. The respondent raised several disputes, including the applicant's resignation without prior notice, alleged financial losses due to the applicant's actions, and non-compliance with the employment contract. The tribunal found that these disputes were genuine and required further investigation. It was noted that the disputes were raised before the issuance of the Section 8 notice, indicating a pre-existing conflict.

3. Validity of the full and final settlement claim by the operational creditor:
The applicant relied on a full and final settlement letter and TDS certificates to claim an outstanding amount of ?12,22,518/-. However, the respondent disputed the authenticity of these documents, arguing that they did not bear the company's signature and seal. The tribunal did not delve into the merits of these claims, as the existence of a dispute was sufficient to reject the application.

4. Impact of the resignation and alleged non-compliance with the employment contract on the financial loss claimed by the corporate debtor:
The respondent contended that the applicant's sudden resignation without the required one-month notice caused significant financial losses and project delays. The tribunal acknowledged that these issues were part of the ongoing dispute and required further examination. The tribunal noted that the respondent had filed a civil suit for recovery of ?15,00,000/- due to the applicant's alleged negligence and breach of contract.

5. Admissibility of the application under Section 9 in light of the pending civil suit and counterclaims:
The tribunal highlighted that the existence of a dispute, including pending litigation, is a valid ground for rejecting an application under Section 9. The respondent's civil suit for recovery was filed within the limitation period and was still pending adjudication. The tribunal concluded that the presence of a genuine dispute and the ongoing civil suit precluded the admission of the CIRP application.

Conclusion:
The tribunal rejected the application under Section 9 of the Insolvency and Bankruptcy Code, 2016, due to the existence of a pre-existing dispute and the pending civil suit. It was clarified that the observations made in the order should not prejudice the applicant's rights in any other forum. The tribunal emphasized that the Code is not a substitute for a recovery forum and that the existence of a dispute removes the corporate debtor from the purview of the Code.

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