2020 (12) TMI 325 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Default on the part of Corporate Debtor in making repayment of its dues - the Adjudicating Authority arrived at a conclusion that there was no debt as claimed by the Appellant besides there being deficiency in service provided by the Appellant warranting dismissal of application - HELD THAT - It is futile on the part of the Corporate Debtor to raise the grievance that there was a dispute relating to the quality of service. No suit or arbitration proceedings were pending on the date of filing of application under Section 7 in regard to quality of service to bring the same within the ambit of dispute as contemplated under Section 5(6)(b) of the I B Code to disentitle the Appellant- Financial Creditor from initiating Corporate Insolvency Resolution Process. No such dispute was even brought to the notice of the Appellant- Financial Creditor as the demand notice served under Section 8(1) of the I B Code was not responded to by the Corporate Debtor. Therefore, we have no hesitation in holding that the Appellant- Financial Creditor was entitled to raise the invoice dated 20.04.2019 in regard to the unpaid balance amount of ₹ 2,05,00,000/- in respect whereof default was committed by the Corporate Debtor who admittedly paid only ₹ 75 Lakhs as part payment. There is nothing on the record to even suggest that the liability was at all denied by the Corporate Debtor and any agreement or settlement was reached inter se the parties for reduction of amount of fee payable in lieu of services provided for the reason that the timelines were not adhered to by the Appellant in arranging financer for the Corporate Debtor s project. The Adjudicating Authority landed in error in observing that there was a clear deficiency in service provided by the Appellant falling within the ambit of Section 5(6)(b) of the I B Code which cannot be supported. The Adjudicating Authority has landed in error in holding that there was no debt as claimed by the Appellant and there was deficiency in service provided by the Appellant. The findings recorded by the Adjudicating Authority are grossly erroneous and same cannot be supported. Once the liability in respect of ₹ 75 lakh was admitted and the same was not discharged by the Corporate Debtor, dispute in regard to quantum of debt would be immaterial at the stage of admission of application under Section 7 unless the debt due and payable falls below the minimum threshold limit prescribed under law. The impugned order is liable to be set aside as the same is unsustainable. Petition allowed.

Summary

Issues Involved:
1. Dismissal of application under Section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Alleged deficiency in service provided by the Appellant.
3. Existence of debt and pre-existing dispute.

Detailed Analysis:

1. Dismissal of application under Section 9 of the Insolvency and Bankruptcy Code, 2016:
The Appellant challenged the dismissal of its application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench. The application was dismissed on the grounds that there was a clear deficiency in the service provided by the Appellant and no debt as claimed by the Appellant.

2. Alleged deficiency in service provided by the Appellant:
The Corporate Debtor, engaged in the construction business, sought the Appellant's services to raise finance and provide advisory services. The Appellant issued a letter on 08.11.2017, which was accepted by the Corporate Debtor. Despite the Appellant's efforts, the Corporate Debtor claimed there was a delay in service, taking 11 months instead of the agreed 6 months, leading to consequential losses. The Corporate Debtor amicably settled the fee at ?150 Lakhs, out of which ?75 Lakhs was paid. The Appellant, however, raised a demand notice under Section 8 of the I&B Code for ?2,41,90,000/-, which was not complied with, prompting the Appellant to initiate the Corporate Insolvency Resolution Process.

3. Existence of debt and pre-existing dispute:
The Corporate Debtor contended that the Appellant's services were delayed, and the agreed professional fees were settled at ?1.5 Crores due to the delay. The Appellant argued that the Corporate Debtor obtained funding of ?280 Crores, and the fees were 1% of this amount. The Corporate Debtor made a part payment of ?75 Lakhs but defaulted on the remaining fees. The Appellant asserted that the Corporate Debtor's letter dated 02.05.2019 was an afterthought to evade liability, and no pre-existing dispute existed. The Corporate Debtor, however, maintained that the Appellant failed to provide services within the fixed period, and discussions led to a mutual agreement of ?1.5 Crores as the full and final settlement. The Corporate Debtor was willing to pay the balance ?75 Lakhs if the Appellant issued the full and final invoice.

Judgment Analysis:
The Tribunal examined the contractual relationship and found that the Appellant provided services for raising finance and advisory services. The engagement letter dated 08.11.2017 specified a six-month period for concluding transactions, extendable by mutual agreement. The Appellant raised invoices based on the Sanction Letter from 'KKR India Asset Finance Pvt. Ltd.' for ?280 Crores. The Tribunal noted that no suit or arbitration proceedings were pending regarding the alleged deficiency of service, and the Corporate Debtor did not respond to the demand notice under Section 8(1) of the I&B Code. The Tribunal concluded that the Appellant was entitled to raise the invoice for the unpaid balance of ?2,05,00,000/-, and the Corporate Debtor's non-payment of ?75 Lakhs was unjustified. The Tribunal found the Adjudicating Authority erred in dismissing the application based on alleged deficiency in service and absence of debt.

Conclusion:
The Tribunal allowed the appeal, set aside the impugned order, and directed the Adjudicating Authority to admit the Appellant's application under Section 7 of the I&B Code, providing an opportunity for the Corporate Debtor to settle the claim if desired. No costs were ordered.