2022 (3) TMI 951 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - rejection of application on the ground of pre-existing dispute between the parties - HELD THAT - The section 9 Application shows very clearly that nine invoices mentioned earlier Judgment were all taken together as part of the operational debt owed by the Corporate Debtor to the Operational Creditor. There are force in the argument of Ld. Counsel for the Respondent that the operational debt relating to the invoices cannot be bifurcated so that only such invoices which are not disputed are considered for the admission of Section 9 application. There is quite obviously a major dispute relating to supply of eighty-four tons of raw material, regarding which there was a big delay in supplying causing disruption production schedule and also loss of money due to increase price of raw material that had to be sourced from the open market to the Corporate Debtor. Detailed examination also makes it clear that a dispute existed between the two parties regarding the debit note and the amount of debt and both the parties were trying to resolve it. The demand notice was issued by the operational creditor on 18.06.2019 and the email communication to resolve the dispute was taking place between the Corporate Debtor and the Operational Creditor much before the issue of demand notice by the operational creditor. gave no reply and thereafter section 9 application was filed by the Appellant/Operational Creditor for initiation of CIRP. Thus, the issue of non-supply of eighty-four tons of raw material, which resulted in the Corporate Debtor raising a debit note of ₹ 12.50 lakhs which was not accepted by the Operational Creditor and became an element of dispute, is sufficient to show that there was a pre-existing dispute between the Operational Creditor and the Corporate Debtor regarding the debt and its payment. This pre-existing dispute is not illusory or a sham one created only to counter the claim of the Operational Creditor by the Corporate Debtor, but a real one. The Adjudicating Authority has not committed any error in rejecting the section 9 application on the ground of pre-existing dispute - there are no reason to interfere with the impugned order - appeal dismissed.

Issues Involved:
1. Pre-existing dispute between the parties.
2. Non-payment of outstanding dues.
3. Dishonoured cheque.
4. Section 9 application under IBC.
5. Admissibility of operational debt.
6. Validity of debit notes and invoices.
7. Evidence of email communications.
8. Running account and payment disputes.
9. Legal precedents and interpretation.

Detailed Analysis:

1. Pre-existing Dispute Between the Parties:
The primary issue in this case revolves around the existence of a pre-existing dispute between the Operational Creditor (Appellant) and the Corporate Debtor (Respondent). The Adjudicating Authority, in its Impugned Order dated 03.03.2021, concluded that there was a pre-existing dispute regarding the delay in the timely supply of materials/goods, which led to the issuance of debit notes and affected the quantum of operational debt. The email communications between the parties from 28.02.2018 to 26.09.2018 substantiated this fact.

2. Non-payment of Outstanding Dues:
The Appellant claimed outstanding dues amounting to ?32,08,640, including ?22,75,120 towards the principal amount and ?9,33,520 towards interest, with an additional interest of ?76,270 accrued from 16.06.2019 to 19.09.2019. Despite several reminders and a statutory demand notice issued under Section 8 of the IBC on 18.06.2019, the Respondent did not make the payment, leading the Appellant to file an application under Section 9 of the IBC.

3. Dishonoured Cheque:
The Respondent issued a cheque for ?15,00,000, which was dishonoured with the remark "payment stopped by drawer." The Appellant argued that this cheque was part of the payment for the goods received. The dishonoured cheque further complicated the payment dispute between the parties.

4. Section 9 Application Under IBC:
The Appellant filed a Section 9 application under the IBC, seeking the initiation of the Corporate Insolvency Resolution Process (CIRP) against the Respondent. The Adjudicating Authority rejected this application, citing the pre-existing dispute as the primary reason.

5. Admissibility of Operational Debt:
The Appellant argued that the Respondent had admitted a debt amount of ?11.25 lakhs, which exceeded the threshold debt of ?1 lakh required for a Section 9 application. However, the Respondent contended that the operational debt could not be bifurcated to exclude disputed invoices and only consider the remaining invoices for establishing the operational debt.

6. Validity of Debit Notes and Invoices:
The Respondent raised debit notes amounting to ?12.5 lakhs for the extra price paid for purchasing raw materials from the open market due to the Appellant's failure to supply materials on time. The Appellant disputed these debit notes, arguing that the delay was due to Allied Strips Ltd., a third-party supplier.

7. Evidence of Email Communications:
The email communications between the parties played a crucial role in establishing the pre-existing dispute. Emails dated 19.02.2018, 26.02.2018, 03.07.2018, 04.07.2018, and 25.10.2018 highlighted the ongoing dispute regarding the supply of materials, the issuance of debit notes, and the acceptance of payment terms.

8. Running Account and Payment Disputes:
The Respondent argued that the payments were being made on a running account basis, evidenced by the cheque for ?15 lakhs and subsequent cheques totaling ?10,25,119. The Appellant contended that these payments were part of the total outstanding amount and not specific to any particular invoices.

9. Legal Precedents and Interpretation:
The judgment referenced the Hon'ble Supreme Court's decision in Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd. (2018 1 SCC 353), which emphasized that the adjudicating authority must determine if there is a plausible contention requiring further investigation and that the dispute is not a spurious defense. The court must reject the application if a genuine dispute exists.

Conclusion:
The Tribunal concluded that the pre-existing dispute between the parties regarding the supply of materials and the issuance of debit notes was genuine and not illusory. Therefore, the Adjudicating Authority did not err in rejecting the Section 9 application based on the pre-existing dispute. The appeal was dismissed, and there was no order as to costs.

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