2022 (7) TMI 721 - 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 - On 05.02.2019, the Operational Creditor sent the demand notice upon the Corporate Debtor under Section 8 of IBC. It could not be received by the Corporate Debtor due to a change of address. Again on 11.02.2019, the Operational Creditor sent one more demand notice under Section 8 of IBC. It was received by the Corporate Debtor but was not replied to by them. The fact is to be considered that though the Corporate Debtor did not reply to the demand notice under Section 8 of IBC sent by the Operational Creditor but had admittedly replied earlier notices pointing out the dispute about services rendered by the Operational Creditor, whether it can be held that there is no pre-existing dispute pending in between them. In view of all the evidence and record, it cannot be said that the Corporate Debtor did not bring to the knowledge of the Operational Creditor about the pendency of the dispute prior to filing of this application and even prior to receipt of demand notice under Section 8 of IBC by them - It is seen from the evidence on record that number of times notices were sent upon the Corporate Debtor demanding the outstanding payment by the Operational Creditor but the Corporate Debtor went on denying the same on the ground of deficiency of service. In view of the above admitted fact, it is held that there is a pre-existing dispute pending in between Operational Creditor and Corporate Debtor relating to services rendered by the Operational Creditor and payment of operational debt as claimed herein. Thus, there is a pre-existing dispute in between the Operational Creditor and Corporate Debtor about the services rendered and payment of debt. Such dispute cannot be said to be spurious, feeble or vexatious. The disputed facts require detail investigation which exercise cannot be undertaken by us in our limited jurisdiction of enquiry of application under Section 9of Insolvency and Bankruptcy Code. Application dismissed being not maintainable.

Summary

Issues:
- Application under Section 9 of IBC for initiation of Corporate Insolvency Resolution Process
- Existence of a pre-existing dispute as per Section 9(5)(ii)(b) of IBC

Analysis:
1. The application was filed by an Operational Creditor against a Corporate Debtor for default in paying operational debt. The debt amount and default date were specified, but the default date was missing in the required form. The Operational Creditor completed work on Wi-Fi systems in colleges under a contract with the Corporate Debtor but did not receive full payment despite repeated demands.

2. The Corporate Debtor contested the claim stating a dispute regarding the quality of services rendered by the Operational Creditor since 2016. The Corporate Debtor alleged that the Wi-Fi services were of inferior quality, causing them losses. They informed the Operational Creditor about the dispute and suggested obtaining test reports before claiming payment. The Corporate Debtor argued that the MoU mandated arbitration for disputes, making the application not maintainable.

3. The Tribunal examined the evidence and found a pre-existing dispute between the parties. The Operational Creditor sent multiple demand notices, and the Corporate Debtor responded, highlighting the service quality dispute. The Corporate Debtor also presented emails and notices indicating the ongoing dispute before the application was filed. The Tribunal concluded that the dispute was genuine and required detailed investigation beyond its jurisdiction.

4. Referring to the Supreme Court's interpretation of Section 9(5)(ii)(d), the Tribunal emphasized the need to reject applications if a genuine dispute exists, even if its success is uncertain. The Tribunal found that the dispute over service quality and payment was not frivolous or vexatious. The numerous correspondences and responses between the parties confirmed the existence of a genuine dispute, making the application unsustainable.

5. Consequently, the Tribunal rejected the application under Section 9 of the Insolvency and Bankruptcy Code, citing the pre-existing dispute as the primary reason. The Registry was instructed to communicate the order to both parties, and the case was closed as the application was deemed not maintainable.