2019 (9) TMI 226 - Tri - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution Process - Corporate Debtor defaulted in repayment of Earnest Money Deposit and Security Deposit - existence of dispute or not - HELD THAT - It is evident on record that the correspondence between the Operational Creditor and the Corporate Debtor reveals that there has been dispute between the parties with regard to supply of clinker by invoices dated 20.02.2016 and 17.03.2016, out of these two invoices, the invoice dated 17.03.2016 for an amount of USD 1,33,782.40 is being included in the claim amount by giving Section 8 notice on 13.11.2017 i.e. subsequent to the Corporate Debtor raising dispute in respect to the invoices 20.02.2016 and 17.03.2016, the dispute is in existence between the parties in respect to the quality of clinker supplied through invoice dated 17.03.2016 which is part of the claim amount. Since this Bench cannot segregate the claim as to how much amount is disputed and as to how much amount not disputed. It is the look out of the Operational Creditor to make a claim to the extent that has not been disputed by the Corporate Debtor. If at all payment of undisputed claim is dependent upon dispute in respect to the material supplied, then also it is a point to be looked into whether dispute is in existence or not. However, in the present case, the Operational Creditor having included the disputed claim as claim in the Petition filed under Section 9, we are of the considered view that it is hit by dispute as contemplated under Section 8 of the code. Once it is proved that dispute is in existence, it does not matter if part payments are made in respect to the claim not disputed. Petition dismissed.

Summary

Issues:
Company Application filed by Operational Creditor against Corporate Debtor for initiation of Corporate Insolvency Resolution Process under the Insolvency & Bankruptcy Code, 2016 due to non-payment of invoices and deposits.

Analysis:
1. The Operational Creditor entered into an agreement with the Corporate Debtor for supplying Clinker and paid Earnest Money Deposit and Security Deposit. The Corporate Debtor failed to pay for the supplied Clinker as per the invoices issued, leading to the Company Application under Section 9 of the Code.

2. The Corporate Debtor claimed a quality issue with the supplied Clinker, alleging it was different from the sample and of poor quality. They notified the Operational Creditor about the quality concern and directed to stop further supply from one source and switch to another. The Operational Creditor complied and supplied from the new source.

3. The Operational Creditor issued a legal notice for non-payment, highlighting the outstanding amounts and demanding payment. The Corporate Debtor responded, acknowledging the dispute over the quality of the supplied Clinker and expressing difficulties in settling payments due to financial constraints.

4. The correspondence between the parties revealed a dispute regarding the quality of Clinker supplied through specific invoices. The Corporate Debtor maintained that the quality issue must be resolved before payment, indicating an existing dispute.

5. The Corporate Debtor's argument that the dispute existed since the initial quality concerns were raised was supported by the email communication and subsequent responses regarding the rejection of the second shipment due to quality issues.

6. The Tribunal emphasized that the existence of a dispute at the time of issuing the Section 8 notice was crucial. The Operational Creditor's inclusion of disputed claims in the petition under Section 9 rendered it inadmissible due to the ongoing dispute.

7. The Tribunal dismissed the Company Petition as misconceived, granting liberty to proceed as per the law and exempting the time spent on the proceedings under the Limitation Act, 1963. The decision was based on the clear presence of a dispute between the parties regarding the quality and payment for the supplied Clinker.