2020 (9) TMI 378 - AT - Insolvency and Bankruptcy

Maintainability of application - Initiation of CIRP - Corporate Debtor failed to make repayment of its dues - pre-existing dispute regarding the supply of goods or not - HELD THAT - Admittedly, no complaint in regard to allegations of fabrication of the debit note and genuineness of the cheque in terms whereof payment had been effected by the Corporate Debtor has been lodged by the Appellant Operational Creditor with the competent authorities. The dispute raised by the Corporate Debtor in reply to demand notice in regard to supply of goods and payment made after reconciliation and settlement of accounts between the two parties taking into consideration the debit note raised by the Respondent much before the issuance of demand notice and the rebate given later through the credit note cannot be said to be illusory or moonshine. Such dispute, being pre-existing i.e. prior to issuance of demand notice and Corporate Debtors plea of having satisfied the Operational Debt after reconciliation of accounts and rebate allowed cannot be resolved in Corporate Insolvency Resolution Proceedings. In the given circumstances, the Adjudicating Authority was right in declining to initiate CIRP against the Corporate Debtor. The appeal is accordingly dismissed at the very pre-admission stage.

Summary

Issues:
Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 dismissed due to pre-existing dispute regarding the supply of goods.

Analysis:
The Appellant filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, seeking to initiate Corporate Insolvency Resolution Process against the Respondent-Corporate Debtor for defaulting on an operational debt of ?9,39,730.14. The Adjudicating Authority dismissed the application citing a pre-existing dispute regarding the supply of goods. The Appellant, an Operational Creditor, challenged this decision, arguing that the Corporate Debtor did not raise any quality issues regarding the supplied coal and had made a partial payment while a substantial amount remained outstanding. The Appellant highlighted that their demand emails requesting payment had gone unanswered by the Corporate Debtor. However, the Corporate Debtor presented evidence of a debit note and credit note, indicating reconciliation and settlement of accounts, with the last payment made after such reconciliation. The Corporate Debtor disputed the quantity of coal supplied, claiming a lower amount than what was invoiced by the Appellant. The Adjudicating Authority found that the dispute raised by the Corporate Debtor, prior to the demand notice, regarding the quantity of goods supplied and the subsequent reconciliation of accounts, constituted a valid pre-existing dispute. The Authority concluded that the Corporate Debtor could not be held in default after the reconciliation and settlement of accounts, and therefore, declined to initiate Corporate Insolvency Resolution Proceedings.

The Appellate Tribunal, comprising Justice Bansi Lal Bhat, Dr. Alok Srivastava, and Shreesha Merla, upheld the decision of the Adjudicating Authority, finding no legal infirmity in the impugned order. The Tribunal dismissed the appeal at the pre-admission stage, affirming that the pre-existing dispute regarding the supply of goods and the subsequent reconciliation and settlement of accounts precluded the initiation of Corporate Insolvency Resolution Process against the Corporate Debtor.