2020 (10) TMI 733 - 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 - The Petition under Section 9 of Insolvency and Bankruptcy Code, 2016 is filed on 07.03.2013 for the default amount of INR18,48,234.54Ps, which was due on account of non-payment for security services provided by the Petitioner to the Respondent as per the work order dtd 14.01.2013 - The above work order dtd 14.01.2013 duly signed by the Petitioner and the Respondent, consists of terms and conditions, wherein at point no. 11, it is stated that - In case of any theft from our factory due to security lapses or inefficiency, the same will be recovered from NISA's A/c. - The work order of 14.01.2013 is effective from 20.01.2013 to 19.01.2014, but it has not been extended. Pre-existing disputes is established when the Respondent in its reply has raised the contentions that a statutory notice was sent on 24.08.2016 demanding an amount of INR75.00 Lakhs by the Respondent to the Petitioner and the same was also replied by the Petitioner. Thereafter, the Respondent had filed CP(L) 889 of 2016 under Section 433 and 434 of the Companies Act, before the Hon'ble High Court, Bombay - The dispute regarding the breach of terms and conditions of the work order was raised by the Corporate Debtor long back prior to the issue of demand notice. Hence this is a case of preexisting dispute between the Corporate Debtor and the Petitioner. The disputes raised by the Corporate Debtor falls within the ambit of Section 5(6) of the Code which provides as below dispute includes a suit or arbitration proceedings relating to- (a) the existence of the amount of debt; (b) the quality of goods or service; or (c) the breach of a representation or warranty; There is a pre-existing dispute, in relation to the unpaid operational debt, between the parties which is supported by the evidence placed on record. This dispute existed prior to the serving of demand notice under section 8 and the Operational Creditor had such notice of existence of such dispute - application rejected.

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP)
2. Pre-existing disputes between Operational Creditor and Corporate Debtor
3. Validity of claims and counterclaims
4. Jurisdiction and appropriate forum for dispute resolution

Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP):
The Operational Creditor, M/s. Nisa Industrial Services Private Limited, filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of CIRP against the Corporate Debtor, M/s. Arora Fibres Limited. The petition was filed due to non-payment of dues amounting to INR 18,48,234.54, which included principal and interest.

2. Pre-existing disputes between Operational Creditor and Corporate Debtor:
The Corporate Debtor raised the issue of pre-existing disputes, citing theft incidents at their factory and claiming that the Operational Creditor was liable for the losses as per the service agreement. The Corporate Debtor had issued a legal notice demanding INR 75 lakhs for the losses incurred due to the thefts, which the Operational Creditor denied. The Corporate Debtor also filed a company petition under Sections 433 and 434 of the Companies Act, which was later withdrawn with liberty to file a fresh petition before the appropriate forum.

3. Validity of claims and counterclaims:
The Operational Creditor claimed an outstanding amount of INR 18,48,234.54, including interest, for the security services provided. The Corporate Debtor disputed the claim, arguing that there were deficiencies in the services provided by the Operational Creditor, leading to thefts and subsequent losses. The Corporate Debtor also filed a consumer complaint against the Operational Creditor, which was pending adjudication.

4. Jurisdiction and appropriate forum for dispute resolution:
The Corporate Debtor argued that the correct forum for the dispute was the Consumer Forum, as observed by the NCLT, Mumbai Bench. The Corporate Debtor had filed a consumer complaint before the State Consumer Dispute Redressal Commission, Mumbai, which was pending. The NCLT, Ahmedabad Bench, noted that the pre-existing disputes between the parties fell within the ambit of Section 5(6) of the Insolvency and Bankruptcy Code, which includes disputes related to the existence of the debt, quality of goods or services, or breach of representation or warranty.

Judgment:
The NCLT, Ahmedabad Bench, observed that there were clear pre-existing disputes between the parties, which existed prior to the issuance of the demand notice under Section 8 of the Insolvency and Bankruptcy Code. Citing the Supreme Court's decision in Mobilox Innovations Pvt. Ltd. v. Kirusa Software (P) Ltd., the tribunal held that in the case of an existing dispute, the application under Section 9 of the Insolvency and Bankruptcy Code must be dismissed. Consequently, the petition filed by the Operational Creditor was rejected, and the application was dismissed due to the existence of a dispute prior to the issuance of the demand notice. The tribunal also clarified that the observations made in the order should not prejudice the rights of the parties before any other forum.

Conclusion:
The petition for initiating CIRP was dismissed due to the existence of pre-existing disputes between the Operational Creditor and the Corporate Debtor. The tribunal emphasized that the observations made in the order should not affect the parties' rights in other forums. The case was disposed of with no costs.

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