2019 (9) TMI 1129 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor - existence of dispute or not - Section 9 of the Insolvency and Bankruptcy Code, 2016 - HELD THAT - It is a settled law that if any dispute is raised prior to the issuance of the invoices or Demand Notice u/s 8(1) of the I B Code with regard to quality of service or goods or pendency of the suit or arbitration, in such case one may take the plea that there is an existence of dispute but if any dispute is raised after issuance of Demand Notice u/s 8(1) that cannot be termed to be a pre-existing dispute . The Adjudicating Authority has failed to notice the aforesaid issue and observed that debt in question is not only serious dispute but also barred by limitation and laches and not discussed under which provision the Master Service Agreement with Sri Gowtham Academy of General and Technical Education was consequentially issued on 8th February, 2016 and the reply to the Demand Notice was issued on 8th August, 2017. Case remitted to the Adjudicating Authority (National Company Law Tribunal), Bengaluru Bench for admitting the application u/s 9 of the I B Code after notice to the Corporate Debtor .

Summary

Issues:
Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 rejected on the ground of 'existence of dispute'.

Analysis:
The Appellant, an Operational Creditor, filed an application under Section 9 of the Insolvency and Bankruptcy Code against the Corporate Debtor. The Adjudicating Authority rejected the application citing the 'existence of dispute'. The Appellant provided evidence of 'debt' and 'default', including a Demand Notice issued under Section 8(1) of the I&B Code on 8th August, 2017. The Respondent filed a reply to the Demand Notice on 8th September, 2017, raising various disputes regarding defective services provided by the Appellant. However, the Respondent failed to produce any correspondence showing that prior to the Section 8 notice, they had intimated about the defective services.

The Tribunal highlighted that if a dispute is raised after the issuance of the Demand Notice under Section 8(1) of the I&B Code, it cannot be considered a 'pre-existing dispute'. The Adjudicating Authority failed to consider this crucial point and incorrectly concluded that the 'debt' in question was not only a serious dispute but also barred by limitation and laches. The Authority did not discuss the provisions under which the 'Master Service Agreement' with another entity was issued, and the reply to the Demand Notice was provided.

In light of the above, the Tribunal set aside the impugned order and remitted the case back to the Adjudicating Authority for admitting the application under Section 9 of the I&B Code after giving notice to the Corporate Debtor. The Corporate Debtor was given the opportunity to settle the claim before admission if they chose to do so. The appeal was allowed with the mentioned observations and directions.