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2022 (1) TMI 868 - AT - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Oprational creditor - pre-existing dispute - last payment was made by the Corporate Debtor on 07.11.2013 the Demand Notices were issued on 30.08.2017 and on 25.07.2018 and the Application was filed on 05.10.2018 - bar of time limitation - C Forms/Sales Tax declaration were given for the entire supply portions - liability and admission as stipulated under Section 18 of the Limitation Act 1963 - HELD THAT - In the instant case the correspondence on record evidences that there indeed was a delay in the performance of the Contract and the final Notice was issued on 01.12.2013 by the Corporate Debtor to complete the works. The first Respondent/ Operational Creditor stated in their Reply that despite several requests and reminder letters from 2013 to 2017 the Corporate Debtor instead of paying the due amounts raised these baseless allegations and disputes. It is the case of the Operational Creditor that there is no Existence of Dispute prior to the issuance of Demand Notice - The Operational Creditor only accepted the debit of 1, 25, 80, 121/- against 5% entry tax which was also accordingly been deducted in calculating the principal amount of Operational Debt of 13.69 Crores. Except these debits none of the debits have been accepted or consented to by the Operational Creditor . It is also their case that fraudulent debit notes were raised by the Corporate Debtor as Purchase Orders were placed with Power Former Engineer for repairs of centrifugal machine which was never part of the scope of work of the first Respondent. On 29.03.2014 it is the case of the Corporate Debtor that the Operational Creditor had abandoned the site and therefore the Corporate Debtor had to take over the Project and make all the relevant payments to the vendor. The material on record shows that on 28.04.2014 another letter was addressed by the Corporate Debtor to the Operational Creditor citing all the inadequacies in the performance of the contract. On 19.06.2014 the Operational Creditor once again raised the payment for 13.34 Crores - It is clear from Section 8(2)(a) that Existence of a Dispute (if any or) record of the pendency of the Suit or Arbitration Proceeding filed before the receipt of such Notice or invoice in relation to such dispute should be brought to the notice of the Operational Creditor within 10 days of receipt of the Demand Notice. In this case the Demand Notice under Section 8 of the Code claiming a sum of 13.69 Crores was issued on 25.07.2018. On 07.08.2018 the Corporate Debtor responded to the Demand Notice referring to various communications Minutes of the Meeting and submitted that there was a Pre-Existing Dispute . It is pertinent to note that on 09.07.2016 prior to the issuance of the Demand Notice under Section 8 of the Code the Operational Creditor invoked Arbitration pursuant to the 8 project orders issued by the Corporate Debtor which itself substantiates the Existence of a Dispute . In the Notice invoking Arbitration the Operational Creditor has stated that there is an outstanding of 18, 12, 21, 452/- and has further stated that they are ready to settle the disputes through Arbitration. A brief perusal of the documents on record evidence that the Operational Creditor admitted that the contract was on lumpsum turnkey basis and stated in the Arbitration Notice that the Corporate Debtor had raised issues relating to non-adherence of the terms of the contract. The communication between the parties as noted in para 10 read together with the Arbitration invoked by the Operational Creditor there is an Existence of a Dispute between the parties which is a genuine dispute and not a spurious patently feeble legal argument or an assertion of fact unsupported by evidence. Appeal allowed.
Issues Involved:
1. Maintainability of the application by a sole proprietorship firm under IBC, 2016. 2. Existence of a pre-existing dispute between the parties. 3. Whether the application for initiation of CIRP is barred by limitation. 4. Whether the issuance of Form-C amounts to an acknowledgment of debt under Section 18 of the Limitation Act, 1963. 5. Authorization of the application by the sole proprietorship firm. 6. Whether the corporate debtor, being an extended limb of the Central Government, can be put under CIRP. Issue-Wise Detailed Analysis: 1. Maintainability of the Application by a Sole Proprietorship Firm: The Tribunal observed that under the provisions of Section 3(23) of IBC, 2016, a sole proprietorship firm is eligible to file a petition under Section 7 or 9 of the IBC, 2016. The Tribunal noted that the legal provisions and aspects regarding the maintainability of the application by a sole proprietorship firm were not argued in the cases relied upon by the Corporate Debtor, thus making those decisions inapplicable. 2. Existence of a Pre-Existing Dispute: The Tribunal examined the correspondence and found that there was indeed a delay in the performance of the contract by the Operational Creditor, evidenced by several letters and communications, including a final notice issued by the Corporate Debtor on 01.12.2013. The Tribunal referred to the Supreme Court's judgment in 'Mobilox Innovations (P) Ltd. Vs. Kirusa Software (P) Ltd.' and 'K. Kishan Vs. Vijay Nirman Co. (P) Ltd.', emphasizing that the existence of a dispute must be genuine and not spurious or hypothetical. The Tribunal concluded that the disputes raised by the Corporate Debtor were genuine and pre-existing, thus warranting the rejection of the application under Section 9 of the IBC. 3. Whether the Application for Initiation of CIRP is Barred by Limitation: The Appellant argued that the application was barred by limitation as the last payment was made on 07.11.2013, and the application was filed on 05.10.2018. The Tribunal noted that the issuance of Form-C by the Corporate Debtor did not amount to an acknowledgment of debt for the purpose of extending the limitation period under Section 18 of the Limitation Act, 1963. The Tribunal did not delve deeply into the limitation aspect, as it found the existence of a pre-existing dispute to be a sufficient ground for rejecting the application. 4. Whether the Issuance of Form-C Amounts to an Acknowledgment of Debt: The Tribunal noted the arguments from both sides regarding whether Form-C issued for tax purposes could be considered an acknowledgment of debt under Section 18 of the Limitation Act, 1963. The Tribunal did not make a definitive ruling on this issue, as it found the existence of a pre-existing dispute to be the primary ground for its decision. 5. Authorization of the Application by the Sole Proprietorship Firm: The Corporate Debtor contended that the application was not properly authorized, as the business of the sole proprietorship is not a legal entity. The Tribunal did not specifically address this issue in detail, as the primary focus was on the pre-existing dispute and limitation aspects. 6. Whether the Corporate Debtor, Being an Extended Limb of the Central Government, Can Be Put Under CIRP: The Corporate Debtor argued that it acts as an extended limb of the Central Government and cannot be put under CIRP. The Tribunal did not address this argument in detail, as the decision was primarily based on the existence of a pre-existing dispute. Conclusion: The Tribunal allowed the appeal, set aside the order of the Adjudicating Authority dated 12.02.2020, and directed the Adjudicating Authority to close the proceedings. The Corporate Debtor was released from all rigours of law and allowed to function independently through its Board of Directors with immediate effect. The Registry was directed to upload the judgment on the Tribunal's website and send a copy to the Adjudicating Authority forthwith.
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