2021 (3) TMI 988 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - pre-existing dispute or not - HELD THAT - The deficiency in services was raised by the Corporate Debtor in the Email Trail communication vide dated 01.02.2018, 21.05.2018, 28.05.2018 and 14.06.2018 between the Operational creditor and Corporate Debtor. Secondly, the Termination Letter dated 18.07.2018, wherein the Corporate Debtor terminated the 5 Purchase orders owing to Non-performance of contract and finally the Legal Notice delivered dated 30.05.2019 clearly establishes the fact that there was pre-existence of Dispute between both the parties prior to the issuance of demand notice. Since there is a pre-existing dispute between the parties, there are no option but to reject the prayer of the Operational Creditor to initiate proceedings under Section 9 of IBC, 2016 - application dismissed.

Summary

Issues:
1. Alleged default in clearing debt by the Respondent
2. Dispute regarding the debt between the parties

Analysis:

Issue 1: Alleged default in clearing debt by the Respondent
The Applicant filed an application seeking to initiate the corporate insolvency resolution process against the Respondent for an alleged default in clearing a debt of ?97,73,307. The Applicant provided details of transactions, including the supply of material and services, raising invoices, and partial payments made by the Respondent. The Respondent made payments but a balance amount remained unpaid, leading to the Applicant seeking resolution through legal notices and demand letters.

Issue 2: Dispute regarding the debt between the parties
The Respondent, in its reply, argued that there was a pre-existing dispute between the parties regarding the completion of work, testing, and installation as per the purchase orders. The Respondent claimed that the termination of the purchase orders was due to the Applicant's failure to complete the work satisfactorily. The Respondent acknowledged the outstanding balance but disputed the quality and completion of the services provided by the Applicant.

The Tribunal analyzed the communications between the parties, including termination letters, legal notices, and email correspondences, to determine the existence of a pre-existing dispute. Referring to legal precedents, the Tribunal emphasized that for a dispute to prevent insolvency proceedings, it must exist before the receipt of the demand notice or invoice. The Tribunal found that there were disputes raised by both parties before the demand notice was issued, leading to the rejection of the Applicant's prayer to initiate proceedings under Section 9 of the Insolvency and Bankruptcy Code, 2016.

In conclusion, based on the evidence presented and the legal principles governing insolvency proceedings, the Tribunal dismissed the application, citing the pre-existence of disputes between the parties as a reason for rejecting the initiation of insolvency proceedings.