2022 (10) TMI 700 - Tri - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - whether a dispute existed prior to the issuance of the Demand Notice by the Operational Creditor? - HELD THAT - It is evident that the disputes raised by the Corporate Debtor vide Letter dated 17th March 2018 were an afterthought and there is no evidence presented to demonstrate their dissatisfaction with the work done by the Operational Creditor before the Legal Notice dated 7th March 2018 was issued - It is clear that if the Corporate Debtor is unable to produce evidence to prove the existence of material disputes prior to issuance of the Demand Notice, then the shelter of this defence will not be available to the Corporate Debtor. The instant Company Petition is liable to be admitted - moratorium declared.

Summary

Issues:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) based on default in payment by Corporate Debtor to Operational Creditor.
2. Dispute regarding quality of work performed by Operational Creditor and outstanding dues.

Issue 1: Initiation of CIRP
The Company Petition was filed by the Operational Creditor to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, alleging default in payment. The petition was filed under Section 9 of the Insolvency and Bankruptcy Code, 2016. The Operational Creditor claimed that the Corporate Debtor failed to pay a principal sum of Rs. 44,00,168/- along with interest, totaling Rs. 55,38,347/-. The Operational Creditor provided services related to publicity design, film announcements, and print advertisement campaigns as per the Corporate Debtor's instructions. Despite the services rendered and invoices raised, the Corporate Debtor allegedly did not make complete payments, leading to the initiation of the CIRP.

Issue 2: Dispute Regarding Quality of Work and Dues
The primary issue for consideration was whether a dispute existed before the Operational Creditor issued the Demand Notice to the Corporate Debtor. The Corporate Debtor raised disputes regarding the quality of work performed by the Operational Creditor and contended that they were not satisfied with the services provided. However, upon examination of the communications between the parties, it was found that the disputes raised by the Corporate Debtor were afterthoughts. The Corporate Debtor failed to provide evidence demonstrating dissatisfaction with the work before the Demand Notice was issued. The Tribunal referred to a Supreme Court case emphasizing the need for a plausible contention requiring further investigation and rejected feeble defenses unsupported by evidence. As a result, the Tribunal admitted the Company Petition, initiating the CIRP against the Corporate Debtor. The Tribunal appointed an Interim Resolution Professional and imposed various restrictions and obligations on the Corporate Debtor during the insolvency resolution process, including a moratorium on legal actions and asset transfers.

This detailed analysis covers the issues of initiating the CIRP based on payment default and the dispute regarding the quality of work and outstanding dues between the Operational Creditor and the Corporate Debtor as outlined in the Tribunal's judgment delivered by the Hon'ble Members.