2021 (2) TMI 724 - AT - Insolvency and Bankruptcy

Recovery of disputed outstanding amount - default period is varying from over 200 days to approximately 500 days - allegation is of manipulation of accounts department - HELD THAT - Keeping in mind the provisions of law laid down in the Code and the Hon ble Apex Court Judgment which has made the provisions of applicability of the Code amply clear as far as initiation of proceedings by Operational Creditor against the Corporate Debtor is concerned we are very much clear that the following facts are proved beyond doubt which has been complied with in accordance with the Hon ble Apex Court Judgments and provisions of the Code. The debt became due from July 2018 the question is whether it became payable by the Corporate Debtor under the law the answer is in negative because there were quality other issues raised by the Corporate Debtor. The Operational Creditor has issued a Demand Notice dated 18.11.2019 received on 06.12.2019 by the Corporate Debtor and within the stipulated period the Corporate Debtor vide its letter dated 09.12.2019 has replied and proved beyond doubt that there is an existence of dispute particular the cracks in the projects sites reduced quality of goods supplied short supply of concrete multiple snags in windows and doors etc also raising issue to initiate arbitration proceedings for excess sum of over 9.51 Crore paid to the Appellant etc. This meets the criteria of genuine dispute raised within stipulated period. Accordingly under Section 9(5)(ii)(d) Application needs to be rejected. The provision of the Code cannot be invoked for recovery of outstanding amount as well as it cannot be misused to drop the curtain on a healthy organization. The Objective of the Code is to consolidate and amend the laws relating to reorganization and Insolvency Resolution of Corporate Persons. Using the platform of the Code threatening the vendor to release even disputed amount is not fair and equitable. There are no merit in the appeal and the Adjudicating Authority has rightly rejected the Application under Section 9 of the Code. The Appeal deserves to be dismissed and hence dismissed.

Summary

Issues Involved:
1. Whether the Company Petition was filed with an intention to recover a disputed outstanding amount.
2. Whether there was a pre-existing dispute between the parties.
3. Whether the demand notice and subsequent application under Section 9 of the Insolvency and Bankruptcy Code (IBC) were appropriately issued and filed.
4. Whether the initiation of arbitration proceedings impacted the maintainability of the insolvency application.
5. Whether the Adjudicating Authority correctly interpreted and applied the provisions of the IBC and relevant case laws.

Issue-wise Detailed Analysis:

1. Intention to Recover Disputed Outstanding Amount:
The Adjudicating Authority observed that the Company Petition was filed with the intention to recover the disputed outstanding amount. The Appellant supplied materials to the Corporate Debtor, and invoices from April 2018 to February 2019 were defaulted. The Appellant claimed a total debt of ?8,44,49,943, including interest. The Corporate Debtor acknowledged a balance of ?6.80 Crore but later revoked this due to accounting issues. The Appellant issued a demand notice under Section 8 of the IBC, followed by an application under Section 9 after not receiving payment.

2. Pre-existing Dispute:
The Respondent argued that there were pre-existing disputes regarding the quality and quantity of materials supplied, supported by various emails and debit notes. The Appellant contended that there were no quality issues raised before the demand notice. The Tribunal found that the Corporate Debtor had raised genuine disputes within the stipulated period, including issues of cracks, reduced quality, and short supply, which were sufficient to establish a pre-existing dispute.

3. Demand Notice and Application under Section 9 of IBC:
The Appellant issued a demand notice on November 18, 2019, and the Corporate Debtor replied on December 9, 2019, raising disputes. The Tribunal noted that the demand notice and application under Section 9 were in compliance with the IBC. However, the existence of a pre-existing dispute meant the application could not be admitted.

4. Impact of Arbitration Proceedings:
The Respondent initiated arbitration proceedings under the Arbitration and Conciliation Act, 1996, before the demand notice was issued. The Tribunal highlighted that the existence of arbitration proceedings further evidenced a pre-existing dispute, impacting the maintainability of the insolvency application.

5. Interpretation and Application of IBC and Case Laws:
The Tribunal referred to the Supreme Court judgment in Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited, which outlines the criteria for admitting an application under Section 9 of the IBC. The Tribunal concluded that the criteria were not met due to the pre-existing dispute and the initiation of arbitration proceedings. The Tribunal emphasized that the IBC is not a tool for debt recovery but for insolvency resolution.

Conclusion:
The Tribunal upheld the Adjudicating Authority's decision to reject the application under Section 9 of the IBC, citing the existence of a genuine pre-existing dispute. The appeal was dismissed, and no order as to costs was made. The Tribunal reinforced that the IBC should not be misused to recover disputed amounts or threaten a healthy organization.