2020 (10) TMI 490 - 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 - 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. 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. 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, filed on behalf of the operational-creditor. Since, no dispute has been raised in pursuance of the demand notice issued under Section 8(1) of IBC, 2016, therefore, any dispute raised after the appearance of the respondent in pursuance to summons issued after filing the main application is not liable to be accepted - in view of Section 9(5)(i)(a) since the application is complete, the invoice for notice of the payment to the Corporate Debtor has been delivered by the Operational Creditor, 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 and there are no disciplinary proceedings pending against the Resolution Professional. Therefore, we think it is proper to admit the application. Petition is admitted - moratorium declared.

Summary

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP)
2. Existence of dispute regarding quality and quantity of work
3. Compliance with statutory notice requirements under IBC Section 8(2)
4. Admissibility of the application under IBC Section 9

Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP):
The Applicant/Operational Creditor filed an application against the Respondent/Corporate Debtor under Section 9 of the Insolvency & Bankruptcy Code, 2016, seeking to initiate the corporate insolvency resolution process. The Corporate Debtor had approached the Operational Creditor for electrical works and issued work orders. Despite part payments and TDS deductions, a sum of ?46,51,634/- remained unpaid. The Operational Creditor issued a statutory notice on 11.04.2019, which the Corporate Debtor failed to respond to adequately, leading to the filing of this application.

2. Existence of dispute regarding quality and quantity of work:
The Corporate Debtor contended that there was an "existence of dispute" about the quality and quantity of work executed by the Operational Creditor. They cited emails and a report from IM Cost Management Pvt. Ltd. to substantiate these claims. However, the tribunal found that the Corporate Debtor failed to provide convincing evidence that these disputes were communicated within the statutory period required under Section 8(2) of the IBC.

3. Compliance with statutory notice requirements under IBC Section 8(2):
The tribunal emphasized the importance of compliance with Section 8(2) of the IBC, which mandates the Corporate Debtor to respond to the demand notice within ten days, either by raising a dispute or showing proof of payment. The Corporate Debtor's claim of having sent an email on 29.04.2019 was found unconvincing as it did not explicitly respond to the demand notice dated 11.04.2019. The tribunal concluded that the Corporate Debtor failed to comply with the statutory requirements, thereby invalidating their defense.

4. Admissibility of the application under IBC Section 9:
The tribunal scrutinized the application under Section 9 of the IBC, which allows an Operational Creditor to initiate CIRP if the Corporate Debtor fails to respond to the demand notice within the stipulated period. The tribunal referred to the Supreme Court's decision in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software (P) Limited, which outlines the conditions for admitting such applications. The tribunal found that the application was complete, the unpaid operational debt exceeded ?1 lakh, and no pre-existing dispute was raised within the statutory period. Consequently, the application was admitted.

Conclusion:
The tribunal admitted the application for initiating CIRP against the Corporate Debtor, finding that the Operational Creditor had fulfilled all statutory requirements and that the Corporate Debtor had failed to raise a valid dispute within the required timeframe. A moratorium was imposed as per Section 14 of the IBC, and an Interim Resolution Professional (IRP) was appointed to take necessary steps under the Code. The Operational Creditor was directed to deposit ?2 lakhs to cover the immediate expenses of the IRP, to be reimbursed later as CIR costs. Copies of the order were directed to be sent to both parties and the IRP.