2022 (3) TMI 949 - 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 - The existence of litigation clearly shows the disputes pending between the parties with regard to the calculation of dues. It is also evident from the reply to the Demand Notice that several conditions mentioned in the tender and the provisions of the Drugs and Cosmetics Act were violated by the applicant. The applicant included misbranded and adulterated drugs The packing of drugs was not as per the requirement of tender. A house fly was seen in one of the bottles of Cloxacillin injection. Numerous complaints regarding the quality of drugs supplied by the applicant herein were received from the Corporate Debtor s warehouses. The Corporate Debtor requested the applicant to replace the damaged and adulterated drugs. However, they did not respond to this request. Therefore, the Corporate Debtor sent a notice to the applicant asking them to appear in person to explain why they should not be blacklisted for non-adherence of tender conditions and violation of Drugs and Cosmetics Act. There is a pre-existing dispute with regard to the calculation of dues and that the Writ Petition with regard to the blacklisting of the Operational creditor for the supply of non-standard quality of drugs supplied by them is still pending before the Hon ble High Court of Kerala. The said fact is suppressed by the Operational Creditor in this application, as rightly pointed out by the Corporate Debtor/ Respondents - there are no merit in this application warranting admission for initiating Corporate Insolvency Resolution Process against the Respondent. Hence, this application which is bereft of merit is dismissed. It is stated that the Operational Creditor (Sic) (Corporate Debtor) has neither replied nor disputed the Demand Notice till date. Whereas, in the application on Page 23, the applicant itself has produced a reply received by them from the Corporate Debtor Kerala Medical Service Corporation Limited stating the pre-existence of dispute. The applicant has suppressed many facts and tried to abuse the process of law by filing this application. There are no merit in this application warranting admission for initiating Corporate Insolvency Resolution Process against the Respondent. Hence, this application which is bereft of merit is dismissed.

Issues Involved:
1. Pre-existing dispute between the parties.
2. Suppression of material facts by the applicant.
3. Compliance with tender conditions and quality of supplied goods.
4. Jurisdictional and procedural correctness of the MSEFC order.
5. Calculation of dues and penalties.

Issue-wise Detailed Analysis:

1. Pre-existing dispute between the parties:
The Corporate Debtor argued that there was a pre-existing dispute regarding the calculation of dues and the quality of goods supplied. The disputes were evident from various litigations pending before the Hon'ble High Court of Kerala, including W.P.(C) 25454/18 and W.P.(C) 14640/16. The Tribunal found that the existence of these litigations clearly indicated ongoing disputes between the parties, which were not disclosed by the Operational Creditor in their application. The Tribunal emphasized that under Section 9 of the IBC, the Adjudicating Authority must consider whether there is a record of dispute, and in this case, the disputes were evident and pending adjudication.

2. Suppression of material facts by the applicant:
The Tribunal noted that the Operational Creditor suppressed material facts regarding the ongoing litigations and disputes between the parties. The Corporate Debtor highlighted that the applicant did not disclose the pendency of writ petitions and the blacklisting order, which were crucial to the case. The Tribunal found that the applicant attempted to abuse the process of law by not revealing these facts, which was a significant factor in dismissing the application.

3. Compliance with tender conditions and quality of supplied goods:
The Corporate Debtor argued that the applicant violated several tender conditions and provisions of the Drugs and Cosmetics Act. Issues such as the supply of misbranded and adulterated drugs, improper packaging, and quality complaints were raised. The Tribunal acknowledged these violations and noted that the Corporate Debtor had penalized the applicant and blacklisted them for non-compliance. The Tribunal found that these quality issues and non-compliance with tender conditions contributed to the pre-existing disputes.

4. Jurisdictional and procedural correctness of the MSEFC order:
The Corporate Debtor contended that the MSEFC order dated 16.04.2018 was not an arbitration award as required under the MSME Act and the Arbitration and Conciliation Act, 1996. They argued that the order was issued without proper arbitration proceedings and was therefore void ab initio. The Tribunal noted that the MSEFC order was under challenge before the Hon'ble High Court of Kerala, and the existence of this challenge indicated a pre-existing dispute. The Tribunal did not delve deeply into the jurisdictional correctness but acknowledged the ongoing challenge as part of the dispute.

5. Calculation of dues and penalties:
The Tribunal examined the claims regarding the calculation of dues and penalties. The Operational Creditor claimed an outstanding debt of ?3,45,96,652/-, while the Corporate Debtor argued that penalties and deductions were made due to the applicant's non-compliance with tender conditions. The Tribunal found that the disputes over these calculations were part of the ongoing litigations and contributed to the pre-existing disputes. The Tribunal concluded that the applicant's claim was not straightforward and was subject to these contested calculations.

Conclusion:
The Tribunal dismissed the application for initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, citing the pre-existing disputes and suppression of material facts by the applicant. The Tribunal also imposed a cost of ?25,000 on the applicant for abusing the process of law. The decision was based on the comprehensive analysis of the disputes, compliance issues, and ongoing litigations between the parties.

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