2019 (3) TMI 879 - AT - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - pre-existing dispute - application under Section 9 filed - HELD THAT - Corporate Debtor has taken a specific plea that in view of lack of expertise, the Operational Creditor (Appellant herein) was not in a position to execute the contract awarded to it and miserably failed to fulfill its obligations. In fact, the Operational Creditor abandoned the project midway without any notice; all the personnel of the Operational Creditor were also removed from the project site in August, 2017. In this background, the Corporate Debtor was forced to engage another contractor by issuing second work order dated 15th August, 2017 to one M/s KSV Infrabuild for a sum of ₹ 2,99,73,003/- The Corporate Debtor had also sought for damages from the Operational Creditor but the notice which was retuned on 3rd May, 2018 with remarks door locked . From the aforesaid facts we find that there is a pre-existing dispute about performance of the Operational Creditor. For the said reason, the Adjudicating Authority rightly refused to entertain the application under Section 9.

Summary

Issues:
- Appeal against rejection of application under Section 9 for initiation of Corporate Insolvency Resolution Process.

Analysis:
The judgment pertains to an appeal filed by 'M/s Aluminium Udyog' (Operational Creditor) against the rejection of its application under Section 9 for commencing Corporate Insolvency Resolution Process against 'M/s Parnika Commercial & Estates Pvt. Ltd.' The Adjudicating Authority had declined the application based on the Corporate Debtor's argument that the Operational Creditor lacked the expertise to fulfill its contractual obligations, abandoned the project midway without notice, and had all its personnel removed from the project site. The Corporate Debtor subsequently engaged another contractor and sought damages from the Operational Creditor, but the notice was returned with remarks indicating the Operational Creditor's unavailability.

The Tribunal analyzed the facts and concluded that a pre-existing dispute existed regarding the performance of the Operational Creditor. In light of this dispute, the Adjudicating Authority's decision to reject the application under Section 9 was deemed appropriate. The Tribunal found no merit in the appeal and dismissed it, ruling that there would be no costs incurred in the process. The judgment highlights the significance of resolving pre-existing disputes before initiating insolvency proceedings and emphasizes the need for operational creditors to fulfill their contractual obligations to avoid such legal consequences.