2020 (8) TMI 393 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - service of SCN - Reply to the notice, raising dispute - pre-existing dispute or not - Appeal filed pointing out various documents to show that there were deficiencies in service including delays and because of that the Work Order was terminated and that Adjudicating Authority did not give proper opportunity to the Appellant to defend the action - HELD THAT - The Adjudicating Authority was proceeding with an important proceeding like one under IBC and even if the Appellant had not appeared, it was apparent from the application under Section 9 filed itself that there was pre-existing dispute. The Adjudicating Authority referred to the averments made by the Operational Creditor in Para- 2 of its Order and the averments themselves show there were incomplete works and Corporate Debtor had terminated Work Order. The Learned Counsel for the Appellant has referred to Rejoinder and trail of e-mails dated 27.09.2016, 29.09.2016, 30.09.2016, 04.10.2016, 14.10.2016, 19.10.2016, 23.10.2016, 26.10.2016 09.11.2016. sent by Appellant to Corporate Debtor which show that there were disputes regarding workmanship and time factor and the Learned Counsel for Appellant states that because of such aspects the Work Order was terminated on 17th November, 2016. The Operational Creditor kept quiet for long time and then sent Notice under Section 8 which was duly replied - Considering all this, it is found that there were pre-existing disputes and it was inappropriate for the Adjudicating Authority to admit application under Section 9. Application dismissed.

Summary

Issues:
1. Adjudication of application under Section 9 of Insolvency & Bankruptcy Code, 2016 based on operational debt claim.
2. Allegations of deficiencies in service leading to termination of work order.
3. Dispute regarding proper service of notice to the Corporate Debtor.
4. Pre-existing disputes between the parties affecting the admission of the application under Section 9.

Analysis:

1. The Respondent, an Operational Creditor, filed an application under Section 9 of the Insolvency & Bankruptcy Code, 2016, claiming that the Corporate Debtor defaulted in payment. The Operational Creditor alleged that services were provided to the Corporate Debtor as per an agreement, and despite completion of a significant portion of the work, the Corporate Debtor terminated the work order citing non-completion and failure to provide a bank guarantee. The Adjudicating Authority admitted the application based on the undisputed operational debt.

2. The Appellant, a shareholder of the Corporate Debtor, challenged the Adjudicating Authority's decision, pointing out deficiencies in service and delays leading to the termination of the work order. The Appellant argued that proper opportunity was not given to defend against the claims made by the Operational Creditor.

3. The Appellant raised concerns regarding the service of notice to the Corporate Debtor, presenting evidence that contradicted the claim of proper service. The Adjudicating Authority relied on the information obtained from the India Post website to assert the service of notice, while the Appellant denied receiving any such communication.

4. The Appellant contended that there were pre-existing disputes between the parties, as evidenced by emails and communications highlighting deficiencies in workmanship and time factors. The termination of the work order was attributed to these disputes, indicating that the Operational Creditor remained silent for a considerable period before initiating the insolvency proceedings. The Appellant's contentions regarding the existence of disputes prior to the application under Section 9 raised questions about the appropriateness of admitting the application.

In conclusion, the Appellate Tribunal allowed the appeal, quashing the Impugned Order and dismissing the application under Section 9 of the Insolvency & Bankruptcy Code. The Corporate Debtor was released from insolvency proceedings, and the management was handed back to its Board of Directors. The Tribunal directed the Operational Creditor to pay the costs and fees related to the Corporate Insolvency Resolution Process, as determined by the Adjudicating Authority.