2019 (7) TMI 963 - Tri - Insolvency and Bankruptcy

Admissibility of petition - initiation of Corporate Insolvency Resolution Process - Section 9 of the Insolvency and Bankruptcy Code, 2016 read with Rule 6 of the Insolvency Bankruptcy (Application to Adjudicating Authority) Rules, 2016 - corporate debtor - scope of dispute under Section 5(6) of IB Code - existence of dispute or not - HELD THAT - On perusal of the records and correspondences of both the sides (as annexed) it is revealed that not only there was/were disputes prior to filing of the instant petition/application but also there was a dispute prior to issuance of demand notice under Section 8 of IB Code. After referring to Section 8 and the judgment in Mobilox Innovations (P.) Ltd. v. Kirusa Software (P.) Ltd. 2017 (9) TMI 1270 - SUPREME COURT went on to hold that, what is important is that the existence of dispute and/or a suit or arbitration proceeding must be pre-existing i.e. it must exist before the receipt of demand notice or invoice as the case may be. This adjudicating authority is of the considered view that there exists a pre-existing dispute regarding failure on the part of the applicant to supply coal as per condition and the which procured from outside there is/are difference in price of the material which is a matter of dispute raised by the corporate debtor time and again - the application filed by the applicant under Section 9 of the Insolvency and Bankruptcy Code for initiation of corporate insolvency resolution process is not maintainable and deserves to be dismissed. Application dismissed.

Summary

Issues:
Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 for Insolvency Resolution Process.

Detailed Analysis:

Issue 1: Background of the Parties
The applicant, an operational creditor, filed an application against the respondent, a corporate debtor, seeking initiation of the insolvency resolution process under the Insolvency and Bankruptcy Code, 2016.

Issue 2: Facts and Business Relations
The applicant, M/s. Mohit Minerals Ltd., supplied coal of Indonesian origin to the respondent, M/s. Shree Rama Newsprint Limited, as per purchase orders and invoices. A dispute arose when the applicant failed to supply coal as per an order, leading the respondent to procure the material from a third party at a higher price.

Issue 3: Disputed Outstanding Amount
The respondent raised a debit note towards freight charges of coal, which the applicant contested, claiming outstanding payments. The respondent argued that there was a pre-existing dispute regarding the amount to be paid, citing communications and actions taken by both parties.

Issue 4: Existence of Dispute
The respondent contended that a dispute existed before the application was filed, as evidenced by ongoing communications and disagreements over the outstanding amount. The respondent highlighted the applicant's delay in disputing the debit note, indicating acceptance of the charges.

Issue 5: Legal Interpretation and Precedents
The Tribunal referred to the definition of "dispute" under the Insolvency and Bankruptcy Code and emphasized the importance of pre-existing disputes before issuing a demand notice. Citing the judgment in Mobilox Innovations (P.) Ltd. v. Kirusa Software (P.) Ltd., the Tribunal outlined the conditions to be met for admitting an application under Section 9 of the Act.

Issue 6: Decision and Dismissal of the Application
After thorough analysis, the Tribunal concluded that there was a pre-existing dispute regarding the failure to supply coal and the subsequent procurement by the respondent at a higher price. As a result, the application for initiating the corporate insolvency resolution process was deemed not maintainable and was dismissed. The Tribunal also highlighted the legislative guide on Insolvency Law and emphasized the need to prevent improper use of the insolvency process.

Conclusion:
The Tribunal dismissed the application under Section 9 of the Insolvency and Bankruptcy Code, citing the existence of a pre-existing dispute between the parties regarding the supply of coal and the disputed outstanding amount. The decision was based on legal interpretations, precedents, and the need to prevent misuse of the insolvency process.