2020 (8) TMI 458 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - pre-existing dispute or not - HELD THAT - The supply of materials by Operational Creditor to the Corporate Debtor under the purchase order and LoA is not in controversy. It is also not in controversy that some of the goods lying unutilised in Gaya DF Area, exposed to vagaries of Nature or pilferage, were lifted back by the Operational Creditor at the specific request of the Corporate Debtor . The conclusion drawn by the Adjudicating Authority on the basis of material brought on record by the parties that dispute in regard to quality of goods not matching the specification of franchiser was for the first time raised by the Corporate Debtor in its reply to the demand notice, justifies the conclusion that the defence raised was an afterthought and spurious. Factum and validity of the letter produced, goes un-assailed and uncontroverted on the part of Corporate Debtor as also the Appellant. The amount acknowledged to be in default far exceeds the prescribed limit of ₹ 1 lakh warranting triggering of Corporate Insolvency Resolution Process . In this view of the matter, the issue raised in this appeal no more survives for consideration as the operational debt being due and payable stands admitted and acknowledged. Appeal dismissed.

Summary

Issues involved:
1. Adjudication of application under Section 9 of the Insolvency and Bankruptcy Code, 2016 for initiation of Corporate Insolvency Resolution Process.
2. Existence of a pre-existing dispute between the Operational Creditor and Corporate Debtor justifying the admission of the application under Section 9.

Detailed analysis:
1. The Respondent, an Operational Creditor, filed an application seeking initiation of Corporate Insolvency Resolution Process against the Corporate Debtor for defaulting on an operational debt. The Adjudicating Authority admitted the application, leading to the appointment of an Interim Resolution Professional. The Appellant, the Corporate Debtor, challenged the admission primarily on the ground of a pre-existing dispute. The factual matrix involved the supply of goods by the Operational Creditor to the Corporate Debtor, with some goods remaining unpaid. The Adjudicating Authority considered various communications between the parties, including an email acknowledging liability from the Corporate Debtor. The Adjudicating Authority dismissed the pre-existing dispute raised by the Corporate Debtor as an afterthought, leading to the appeal.

2. The main issue for consideration was whether a pre-existing dispute existed that would prevent the admission of the application under Section 9. The Appellant contended that disputes regarding the quality of goods supplied and reconciliation of accounts were ongoing, and the Adjudicating Authority did not address the quantum of default adequately. On the other hand, the Operational Creditor argued that the Corporate Debtor's defenses were afterthoughts, with no proof of defective goods claims. The Operational Creditor highlighted acknowledgments of liability by the Corporate Debtor in subsequent communications, surpassing the threshold for initiating the Corporate Insolvency Resolution Process.

3. After hearing arguments from both parties and examining the evidence, the Tribunal found that the supply of materials and the lifting of goods by the Operational Creditor were not in dispute. The Adjudicating Authority's conclusion that the quality dispute was raised belatedly by the Corporate Debtor was upheld. The Tribunal noted that the admitted liability exceeded the threshold for initiating the Corporate Insolvency Resolution Process, rendering the pre-existing dispute argument moot. The Tribunal dismissed the appeal, emphasizing the uncontroverted acknowledgment of the debt by the Corporate Debtor, thus upholding the admission of the application under Section 9.