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2022 (1) TMI 400 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - pre-existing dispute or not - HELD THAT - In view of the law laid down by the Apex Court in the case of Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd. 2017 (9) TMI 1270 - SUPREME COURT , it is very clear that we are not here to determine the merits of the dispute. We are only to see, whether there is a plausible contention which is not patiently feeble legal argument or an assertion of facts unsupported by evidence. It has been further observed that the Hon'ble Supreme Court the defense should not spurious, mere bluster, plainly frivolous or vexatious. A dispute should truly exist between the parties which may or may not ultimately succeed. It is also settled law the 'term dispute' as defined in sub-section (6) of section 5 of IBC cannot be limited to proceeding within the limited ambit of a suit or an arbitration and the term. Considering the material on record particularly the communications reproduced, admittedly in existence before the receipt of the demand notice, its our foregone conclusion that the plea raised by Corporate Debtor of pre-existing dispute has merit and do not appear to be patiently feeble legal argument/assertion unsupported by evidence. And as a consequence thereof present application under Section 9 of IBC is hereby rejected. Application dismissed.
Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016. 2. Existence of a pre-existing dispute between the Operational Creditor and Corporate Debtor. 3. Validity and maintainability of the application under Section 9 of IBC. 4. Allegations of deficiency in service and breach of contract by the Operational Creditor. 5. Counterclaims and legal actions initiated by the Corporate Debtor. Issue-wise Analysis: 1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016: The Operational Creditor, a proprietorship firm, filed a petition under Section 9 of the IBC seeking initiation of CIRP against the Corporate Debtor for non-payment of dues amounting to ?78,87,525/- for construction-related works. The Operational Creditor claimed that despite multiple assurances and partial payments, the Corporate Debtor failed to clear the outstanding dues, leading to the issuance of a Demand Notice dated 25.09.2019. 2. Existence of a pre-existing dispute between the Operational Creditor and Corporate Debtor: The Corporate Debtor argued that there were pre-existing disputes regarding the quality and completion of the work performed by the Operational Creditor. Multiple letters dated 9th and 11th July 2019 were cited, highlighting deficiencies and discrepancies in the work and billing by the Operational Creditor. The Corporate Debtor claimed that these disputes were communicated to the Operational Creditor both orally and in writing before the issuance of the Demand Notice. 3. Validity and maintainability of the application under Section 9 of IBC: The Corporate Debtor contended that the application was not maintainable due to the pre-existing disputes and alleged that the application was misconceived and baseless. The Corporate Debtor also highlighted that a Civil Suit (Money Suit No. 573/2019) and a criminal complaint were filed against the Operational Creditor on 27th September 2019, further indicating the existence of disputes. 4. Allegations of deficiency in service and breach of contract by the Operational Creditor: The Corporate Debtor alleged that the Operational Creditor failed to perform the required civil works as per the terms of the work orders, leading to substantial financial losses. The Corporate Debtor claimed to have incurred expenses for rectifying the defective work and estimated further expenditures for completing the unfinished work. It was argued that the Operational Creditor was not entitled to any further payments due to these deficiencies and breaches. 5. Counterclaims and legal actions initiated by the Corporate Debtor: The Corporate Debtor filed a Civil Suit seeking a declaration that no money was due to the Operational Creditor and claimed damages of ?27,00,000/-. The Corporate Debtor also filed a criminal complaint against the Operational Creditor and another individual, which was registered as an FIR, and the police investigation was ongoing. These actions were presented as evidence of the pre-existing disputes. Judgment: The Tribunal examined the submissions and evidence from both parties. It referred to the Supreme Court's judgment in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd., emphasizing that the existence of a plausible contention, not a spurious or frivolous dispute, is sufficient to reject an application under Section 9 of IBC. The Tribunal found that the Corporate Debtor's claims of pre-existing disputes were supported by evidence, including the letters dated 9th and 11th July 2019, which were communicated before the Demand Notice. The Tribunal concluded that the plea of pre-existing disputes raised by the Corporate Debtor had merit and was not a feeble legal argument. Consequently, the application under Section 9 of IBC was rejected. The Operational Creditor was advised to pursue other legal remedies available under the law. Disposition of IA No. 449/KB/2020: Since the main application under Section 9 of IBC was rejected, the related IA No. 449/KB/2020 seeking dismissal of the main application and stay of proceedings was also disposed of accordingly. Order: The application under Section 9 of IBC was rejected, and the Operational Creditor was advised to explore other legal remedies. Certified copies of the order were to be issued to all concerned parties upon compliance with requisite formalities.
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