2021 (1) TMI 759 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditor under section 9 of I B Code - whether the pre-existence of dispute shall be seen from the date of the first demand notice dated 2nd December 2017 or the second demand notice dated 23rd August, 2018? - HELD THAT - From the decision of MOBILOX INNOVATIONS PRIVATE LIMITED VERSUS KIRUSA SOFTWARE PRIVATE LIMITED 2017 (9) TMI 1270 - SUPREME COURT it is clear that the existence of the dispute must be pre-existing i.e., it must exist before the receipt of the demand notice or invoice. Section 9 of the IBC makes it very clear for the Adjudicating Authority to admit the application if no notice of dispute is received by the Operational Creditor and there is no record of the dispute in the information utility. In the absence of any existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid Operational Debt . Consequently, the application cannot be rejected under section 9 and is required to be admitted. It is apparent from the records that the Corporate Debtor had not raised any objection pertaining to the work performed by the Operational Creditor prior to the first demand notice dated 2nd December, 2017. It was on 13th December, 2017 when the Corporate Debtor responded for the first time in its reply to the notice issued by the Operational Creditor under Section 8(1) of I B Code - It is noted that a large number of email communications has been made by the Operational Creditor and not even a single response was made by the Corporate Debtor raising such disputes. It is apparent from the records placed before this tribunal that Corporate Debtor have sent a legal notice on 13th March, 2018 setting out several preexisting disputes as to quality of work and delay in completion of work and also raised a counter claim against the Operational Creditor. The Corporate Debtor also sent a notice invoking arbitration on 10th April, 2018. These issues were raised after the issuance of the first demand notice. Thus there were no disputes existing prior to the issuance of first demand notice - The arbitration notice was sent after the issuance of the first demand notice but prior to the issuance of second demand notice when the Operational Creditor was busy in removing the defects in its first petition. This exhibits that the intention of the Appellant behind this was to misuse the provisions under the Code and to intentionally delaying the process of law. There were no objections raised in relation to quality of work prior to the issuance of first demand notice and the work done by the Operational Creditor was in fact certified by the architect appointed by the Corporate Debtor. Moreover, the Municipal Corporation in September, 2016 issued Occupation Certificate to the Appellant. If there were any discrepancies, the appellant could not have obtained Occupation Certificate from municipality. This also shows that all the defects pointed out by the architect have been timely rectified within the appropriate time, so that the Municipal Corporation found it appropriate to issue the Occupation Certificate. There was no dispute existing prior to the first demand notice and only disputes raised prior to the first demand notice are relevant to determine its pre-existence and disputes raised thereafter are totally irrelevant for the same - Also the arbitration was invoked after the first demand notice. Thus the Adjudicating Authority have rightly concluded that there was no dispute existing prior to the demand notice issued under section 8 of I B Code. Thus, there is no reason for interference with the impugned order passed by the Adjudicating Authority - appeal dismissed.

Summary

Issues Involved:
1. Pre-existing dispute between the parties.
2. Validity of the second demand notice under Section 8 of the Insolvency and Bankruptcy Code (I&B Code).
3. Admissibility of the petition under Section 9 of the I&B Code.

Detailed Analysis:

1. Pre-existing dispute between the parties:

The Appellant argued that there was a pre-existing dispute due to the pending arbitral proceedings initiated before the second demand notice. The Corporate Debtor had sent a detailed legal notice on 13th March 2018, setting out several pre-existing disputes regarding the quality of work and delay in completion. A notice invoking arbitration was sent on 10th April 2018. However, the Tribunal observed that these issues were raised after the issuance of the first demand notice on 2nd December 2017. The Tribunal referenced the Supreme Court judgment in Mobilox Innovations Pvt. Ltd. vs Kirusa Software (P) Ltd., which held that the existence of a dispute must be pre-existing, i.e., it must exist before the receipt of the demand notice or invoice.

2. Validity of the second demand notice under Section 8 of the I&B Code:

The Appellant contended that the relevant date for determining the pre-existing dispute should be the date of the second demand notice, i.e., 23rd August 2018, since the first petition was dismissed due to incorrect claims. However, the Tribunal rejected this argument, stating that the first petition was dismissed with liberty to file a correct claim. The Tribunal relied on the judgment in Dinesh Gupta vs. Hajura Singh Bhim Singh, which held that there should be no dispute in existence prior to the first demand notice. The Tribunal emphasized that disputes raised after the first demand notice are irrelevant for determining pre-existence.

3. Admissibility of the petition under Section 9 of the I&B Code:

The Tribunal examined whether the Adjudicating Authority rightly allowed the petition of the Operational Creditor under Section 9 of the I&B Code. The Tribunal noted that the Corporate Debtor had not raised any objections regarding the work performed by the Operational Creditor prior to the first demand notice. The Tribunal observed that a large number of email communications from the Operational Creditor went unanswered by the Corporate Debtor, indicating no pre-existing dispute. The Tribunal concluded that the arbitration notice was sent after the first demand notice, demonstrating an intention to misuse the provisions under the Code and delay the legal process. The Tribunal held that the Adjudicating Authority correctly concluded that there was no pre-existing dispute prior to the demand notice issued under Section 8 of the I&B Code.

Conclusion:
The Tribunal found no reason to interfere with the impugned order passed by the Adjudicating Authority. The appeal was dismissed, and no order as to costs was made.