2020 (6) TMI 645 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - HELD THAT - Having gone through the matter and on considering record, there remains hardly any doubt that the earlier correspondence shows that between the parties there were disputes regarding installation of the project as well as functioning of the same. Although the project had been commissioned for which completion certificate had been issued, still if disputes had arisen between the parties regarding the installation and functioning of the project, the operational creditor merely pointed out certificate of appreciation dated April, 2015 issued and claims that once completion certificate had been issued, corporate debtor could not raise issues with regard to the quality of the work done. In fact, the record shows that there had been even a review meeting between the operational creditor and the corporate debtor and excerpts of which minutes have been placed on record by the corporate debtor at page 187 which showed that full installation was yet to be completed (see page 188) - Only by observing that the respondent-corporate debtor have not come forward to dispute the application would not be sufficient to initiate CIRP, if the record already showed existence of dispute. Considering the voluminous records showing pre-existing disputes between the parties, there is no fault found with the affidavit filed by the authorized representative of the operational creditor as at page 495 of which paragraph 5 we have reproduced earlier. Although the Adjudicating Authority had specifically asked for the correspondence, it can be seen that the authorized representative Mr. Rahul Gupta resorting to articulate wordings avoided placing on record the correspondence claiming that presently the communication is not retrievable . Starting of the CIRP against a functional company is a serious matter and parties cannot be allowed to play hide and seek - We propose to impose heavy costs on the operational creditor as well as Mr. Rahul Gupta. The initiation of the corporate insolvency resolution process against the corporate debtor is quashed and set aside - We release the corporate debtor from rigour of the corporate insolvency resolution process . The interim resolution professional /resolution professional will handover the assets and records to the corporate debtor / promoter /board of directors - We impose costs of ₹ 5 lakhs on operational creditor. We impose costs of ₹ 2,50,000 on Mr. Rahul Gupta, son of Rajendra Prasad Gupta the director of the operational creditor which he shall pay from his personal account to the corporate debtor. The corporate debtor will be at liberty to execute and recover these costs or it may adjust the same from payments, if any, it has to make to the operational creditor.

Issues Involved:
1. Admission of the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC).
2. Existence of pre-existing disputes between the operational creditor and the corporate debtor.
3. Service of notice under Section 8 and Section 9 of the IBC.
4. Conduct of the operational creditor and its authorized representative during the proceedings.

Issue-wise Detailed Analysis:

1. Admission of the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC):
The operational creditor filed an application under Section 9 of the IBC against the corporate debtor, which was admitted by the Adjudicating Authority (National Company Law Tribunal, Chandigarh Bench) on July 26, 2019. The application was based on an alleged default in payment of ?2,82,48,963 along with interest. The Adjudicating Authority directed the operational creditor to reconcile the amount of the invoices and subsequently proceeded ex parte against the corporate debtor, initiating the corporate insolvency resolution process (CIRP).

2. Existence of pre-existing disputes between the operational creditor and the corporate debtor:
The appellant argued that there were serious disputes regarding the installation, commissioning, and maintenance of the solar power project. The appellant presented numerous documents and e-mails exchanged between the parties, evidencing these disputes. The operational creditor had suppressed this correspondence, which showed pre-existing disputes, from the Adjudicating Authority. The Tribunal found that there was indeed voluminous evidence of pre-existing disputes, which should have led to the rejection of the Section 9 application.

3. Service of notice under Section 8 and Section 9 of the IBC:
The appellant contended that the Section 8 notice was not sent to the registered office of the corporate debtor but to another address and the e-mail address of the then director. The operational creditor did not serve the petition and paper book on the said e-mail address. The Tribunal noted that the operational creditor served papers on the registered address, which was no longer under the control of the corporate debtor. The Tribunal did not find it necessary to deliberate on the grievances regarding the manner of service of notices, considering the voluminous records showing pre-existing disputes.

4. Conduct of the operational creditor and its authorized representative during the proceedings:
The Tribunal found fault with the affidavit filed by the authorized representative of the operational creditor, Mr. Rahul Gupta, who avoided placing on record the correspondence showing pre-existing disputes by claiming that the communication was "presently not retrievable." The Tribunal emphasized that starting the CIRP against a functional company is a serious matter and parties cannot be allowed to play hide and seek. Consequently, the Tribunal imposed heavy costs on the operational creditor and Mr. Rahul Gupta for their conduct.

Judgment:
The Tribunal set aside the impugned order dated July 26, 2019, quashing the initiation of the CIRP against the corporate debtor. All steps taken in consequence of the impugned order and further orders passed during the CIRP were also quashed and set aside. The corporate debtor was released from the rigour of the CIRP, and the interim resolution professional was directed to hand over the assets and records to the corporate debtor/promoter/board of directors. Costs of ?5 lakhs were imposed on the operational creditor, and ?2,50,000 on Mr. Rahul Gupta, to be paid from his personal account to the corporate debtor.

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