2022 (1) TMI 566 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - HELD THAT - A pre-existing dispute regarding the material supplied by the operational creditor has been in existence even before the reply to the demand notice has been issued remain unsubstantiated. Further we also observed from the record before us that even though the representatives of operational creditor and the corporate debtor have participated with Sintex in the triparty meeting the record does not show any dispute being raised by corporate debtor in any of the meetings. In fact for the first time a dispute has been raised in reply to the demand notice. Hence we find no force at all in the plea of the corporate debtor that there was a pre-existing dispute. The corporate debtor has categorically acknowledged the outstanding debt on two separate occasion s i.e. on 27.04.2019 and on 25.11.2019. This admitted debt remain undischarged despite notice of demand. There exists an operational debt and the same despite being acknowledged by the corporate debtor on various occasions and failed in discharging the same that there is no pre-existing dispute - Application admitted - moratorium declared.

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Alleged default in payment by the corporate debtor.
3. Dispute regarding the quality of materials supplied.
4. Existence of pre-existing disputes before the demand notice.
5. Acknowledgment of debt by the corporate debtor.

Issue-wise Detailed Analysis:

1. Initiation of CIRP under Section 9 of the Insolvency and Bankruptcy Code, 2016:
The petition was filed under Section 9 of the Insolvency and Bankruptcy Code, 2016, seeking the initiation of the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor for defaulting on a payment of ?1,68,02,813/- along with interest at 18% per annum. The operational creditor, engaged in the manufacture and trading of Nano materials, supplied products to the corporate debtor, who is in the business of manufacturing master batches for the plastics industry. The operational creditor raised invoices based on purchase orders placed by the corporate debtor.

2. Alleged Default in Payment by the Corporate Debtor:
The operational creditor claimed that the corporate debtor availed products and raised purchase orders on various dates, with invoices duly accepted by the corporate debtor. Despite the acceptance, the corporate debtor failed to make payments against the eight invoices in question. The operational creditor sought confirmation of the outstanding balance of ?1,68,02,813/- on 27.04.2019 and 13.11.2019, which the corporate debtor confirmed via email. However, no payments were made except for a minor unrelated transaction.

3. Dispute Regarding the Quality of Materials Supplied:
The corporate debtor contended that the materials supplied were defective, citing issues with shade variation and yellow color mix in invoices B1552 and B1553 dated 19.09.2018. This allegedly led to the rejection of 25 tanks manufactured by Sintex and subsequent production issues. The corporate debtor claimed that the operational creditor failed to replace the defective material, leading to a pre-existing dispute before the demand notice was issued.

4. Existence of Pre-existing Disputes Before the Demand Notice:
The corporate debtor argued that a pre-existing dispute existed regarding the defective materials supplied, referencing judgments from the Hon'ble NCLAT and Hon'ble Supreme Court, which state that if a dispute existed prior to the demand notice, the application should be rejected. However, the operational creditor countered that the dispute mentioned by the corporate debtor pertained to transactions with Sintex, not the current invoices in question.

5. Acknowledgment of Debt by the Corporate Debtor:
The operational creditor highlighted that the corporate debtor acknowledged the outstanding debt on two separate occasions (27.04.2019 and 25.11.2019) and that there was no pre-existing dispute regarding the eight invoices before the demand notice. The tribunal found no substantiated evidence of a pre-existing dispute and observed that the corporate debtor's acknowledgment of debt remained undischarged despite the notice of demand.

Conclusion:
The tribunal, after careful consideration of the records and arguments from both sides, concluded that there exists an operational debt, and the corporate debtor failed to discharge the acknowledged debt. The tribunal admitted the petition under Section 9 of the Insolvency and Bankruptcy Code, 2016, and initiated the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor. A moratorium was declared, and an Interim Resolution Professional (IRP) was appointed to carry out the functions as per the Insolvency & Bankruptcy Code. The order included prohibitions on suits, proceedings, and actions against the corporate debtor and ensured the continuation of essential goods and services during the moratorium period. The registry was directed to update the status of the corporate debtor on the MCA-21 site of the Ministry of Corporate Affairs.

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