2020 (10) TMI 1067 - AT - 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 apparent from record that there was a Pre-Existing Dispute between the Parties. When there were clear documents raising disputes, it was not appropriate for the Adjudicating Authority to enter into procedure in the nature of Trial of Civil Suit. It was a matter which would require adjudication before the appropriate Court. The Impugned Order itself shows that the Operational Creditor was aware regarding the dispute relating to sub-contract and pleaded before the Adjudicating Authority that it was with good intention to get the work completed, that the Operational Creditor had sub-contracted work. Whether or not Operational Creditor could sub-contract was issue for appropriate Court to decide. Nature of Proceedings under Section 9 of IBC are summary disputed questions of facts already raised before Notice under Section 8 of IBC, cannot be investigated. Thus, there was a pre-existing dispute in this matter when Demand Notice under Section 8 was issued - application cannot be admitted.

Summary

Issues:
1. Admission of application under Section 9 of Insolvency and Bankruptcy Code, 2016 by the Adjudicating Authority.
2. Existence of pre-existing dispute between the parties.
3. Evaluation of evidence and documents presented by both parties.
4. Interpretation of the judgment in Ahulwalia Contracts (India) Pvt. Ltd. vs. Raheja Developers Limited.
5. Appropriate adjudication of disputes under Section 9 of IBC.

Issue 1: Admission of application under Section 9 of IBC
The Appellant, the Director of the Corporate Debtor, filed an appeal against the orders passed by the Adjudicating Authority admitting the application under Section 9 of the Insolvency and Bankruptcy Code, 2016. The Respondent, an Operational Creditor, claimed an outstanding amount for work done by sub-contractors, leading to the initiation of Corporate Insolvency Resolution Process (CIRP).

Issue 2: Existence of pre-existing dispute
The Appellant argued that there was a pre-existing dispute between the parties, as evidenced by a Notice sent by the Operational Creditor and a subsequent Reply by the Corporate Debtor. The Adjudicating Authority, however, based its decision on the identification of signatures on measurement sheets by an ex-employee of the Corporate Debtor, disregarding the disputes raised in the correspondence between the parties.

Issue 3: Evaluation of evidence and documents
The Adjudicating Authority conducted a quasi-trial by examining witnesses and making findings on the dispute regarding non-execution of work. The Appellate Tribunal found that the Authority should not have delved into detailed fact-finding, as the nature of proceedings under Section 9 of IBC is summary, and disputed facts raised prior to the Notice under Section 8 should not be investigated.

Issue 4: Interpretation of Ahulwalia Contracts judgment
The Adjudicating Authority relied on the judgment in Ahulwalia Contracts (India) Pvt. Ltd. vs. Raheja Developers Limited to admit the application despite the existence of a dispute. The Appellant contested this interpretation, arguing that the judgment should apply only in the absence of evidence showing the dispute was raised before the issuance of the Demand Notice.

Issue 5: Appropriate adjudication of disputes
The Appellate Tribunal concluded that there was a pre-existing dispute between the parties at the time of issuing the Demand Notice under Section 8. It found the Adjudicating Authority's approach akin to a trial, which was not suitable for the summary proceedings under IBC. Consequently, the Appeal was allowed, quashing the Impugned Order and dismissing the Operational Creditor's application under Section 9 of IBC.

This detailed analysis of the judgment highlights the key issues, arguments presented by both parties, the evaluation of evidence, and the Tribunal's interpretation of relevant legal principles.