2020 (10) TMI 489 - Tri - 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 - It is admitted fact that the Corporate Debtor has not sent the reply as required under Section 8(2) of the IBC, 2016, according to which the Corporate Debtor shall within a period of 10 days of the receipt of demand notice or copy of invoices mentioned in sub section (1) bring to the notice of the Operational Creditor, the existence of dispute or record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such disputes. Before initiating a proceeding under Section 9, the operational-creditor is required to fulfil the conditions mentioned under Section 8(1), if he has not sent the demand notice as required under Section 8(1) of the Code, then he cannot invoke the provision under Section 9, rather he can invoke the provision of Section 9 only, when Corporate Debtor fails to raise the existing of disputes or produce the document to show that unpaid operational debt has been paid within ten days of the receipt of the demand notice. Therefore, on the basis of aforesaid provisions, we are of the considered view that Section 8 and 9 cast a duty upon the operational-creditor as well as Corporate Debtor to act as per Section 8 and if they fail to fulfil the conditions of Section 8 and 9 then in that case neither the application filed by the operational-creditor is maintainable nor the plea of existing of disputes or the payment of debt subsequently taken by the Corporate Debtor can be taken into consideration. In the present case, since it is specifically mentioned in Section 8(2) of the Code that within ten days from the date of the receipt of the demand notice, the corporate-debtor is required to bring to the notice of the operational-creditor, the existence of dispute or the documents regarding the payment of debt, therefore, we have no option, but to hold that since the corporate-debtor fails to give the reply of the demand notice and raised the disputes, hence after his appearance in response to the notice, he cannot raise it by filing the reply to the application. In view of Section 9(5)(i)(a) since the application is complete, there is no payment of unpaid operational debt, which is more than ₹ 1 Lakh, which is the minimum threshold U/S 4 of the Code for initiating a proceeding U/S 9 of the Code and no notice of dispute as required U/S 8(2) of the Code is raised by Corporate Debtor - petition admitted - moratorium declared.

Summary

Issues Involved:
1. Validity of the Letter of Intent (LOI) as a binding contract.
2. Existence of a pre-existing dispute.
3. Compliance with statutory requirements under Sections 8 and 9 of the Insolvency and Bankruptcy Code (IBC), 2016.
4. Admission of the application for initiating Corporate Insolvency Resolution Process (CIRP).

Issue-wise Detailed Analysis:

1. Validity of the Letter of Intent (LOI) as a binding contract:

The Operational Creditor argued that the LOI dated May 3, 2017, though unsigned, was valid under the concept of an implied contract as recognized under Section 9 of the Indian Contract Act, 1872. The LOI was acted upon for a significant period, thus fulfilling the requirements of an implied contract. The Corporate Debtor contended that the LOI was valid only for one month and required a definitive agreement, which was never executed. However, the Tribunal noted that the LOI was acted upon, and thus, the implied contract was valid.

2. Existence of a pre-existing dispute:

The Corporate Debtor claimed several disputes, including non-receipt of annexures with the civil recovery notice, oral agreements on cost and profit, and issues with compliance documents (ESI, PF). They also alleged that the Operational Creditor raised bogus bills and failed to provide proper invoices. The Operational Creditor countered that these disputes were raised only after the demand notice was issued and were an attempt to mislead the Tribunal. The Tribunal found that the Corporate Debtor did not raise these disputes within the ten-day period as required under Section 8(2) of the IBC, 2016, thus failing to establish a pre-existing dispute.

3. Compliance with statutory requirements under Sections 8 and 9 of the Insolvency and Bankruptcy Code (IBC), 2016:

The Operational Creditor issued a demand notice on June 4, 2018, demanding payment of ?74,10,533 along with 18% interest p.a. The Corporate Debtor failed to respond within the ten-day period stipulated under Section 8(2) of the IBC, 2016. The Tribunal emphasized that the operational creditor must deliver a demand notice of unpaid operational debt, and the corporate debtor must respond within ten days, either disputing the debt or showing payment. The Tribunal found that the Operational Creditor complied with these requirements, and the Corporate Debtor failed to raise any valid disputes or show payment within the stipulated period.

4. Admission of the application for initiating Corporate Insolvency Resolution Process (CIRP):

The Tribunal, after considering the submissions and evidence, concluded that the application was complete, and there was no payment of the unpaid operational debt, which exceeded the minimum threshold of ?1 lakh as per Section 4 of the IBC. Since no valid notice of dispute was raised by the Corporate Debtor within the ten-day period, the Tribunal admitted the application under Section 9(5)(i)(a) of the IBC, 2016. The Tribunal also appointed an Interim Resolution Professional (IRP) and directed the Operational Creditor to deposit ?2 lakhs to meet the immediate expenses of the IRP.

Conclusion:

The Tribunal admitted the application for initiating CIRP against the Corporate Debtor, citing compliance with Sections 8 and 9 of the IBC, 2016, and the failure of the Corporate Debtor to raise a valid pre-existing dispute within the stipulated period. The Tribunal appointed an IRP and directed the Operational Creditor to deposit funds for immediate expenses. The decision underscores the importance of adhering to statutory timelines and requirements under the IBC.