2023 (5) TMI 1132 - AT - Insolvency and Bankruptcy

Initiation of CIRP - Existence of dispute - NCLT dismissed the application - Operational Creditors - whether in the facts of the present case, a genuine and real pre-existing dispute can be said to be in existence between the two parties? - HELD THAT - There are no material on record by way of reply to the Corporate Debtor by the Operational Creditor which substantiates their having controverted the email dated 15.10.2014. The Adjudicating Authority, has, therefore not committed any mistake in holding that the said email clearly reflected that there was a specific dispute about the poor quality of goods supplied by the Operational Creditor. It is also noticed that the quality test analysis report of Coal dated 29.09.2014 was conducted by the testing agency on the instructions of the Operational Creditor as placed at Annexure-H in the reply affidavit. This lends credulity to the contention of the Learned Counsel for the Respondent that when the test was conducted by an agency on behalf of the Appellant themselves and refund was also allowed, the poor quality of coal stood admitted by the Appellant. There was sufficient foundation of genuine disputes between the two parties and the same is amply supported by material on the record. It is not the remit of IBC to investigate all related contractual disputes and look into their merits as long as it suffices that a plausible defence has been raised as has been done in the present case. In the present factual matrix, the defence raised by the Corporate Debtor cannot be held to be moonshine, spurious, hypothetical or illusory - the Adjudicating Authority did not commit any error in rejecting the Section 9 Application filed by the Appellant on the ground of pre-existing dispute. There is no merit in the Appeal - Appeal is dismissed.

Summary

Issues Involved:
The judgment deals with the dismissal of a Section 9 application under the Insolvency and Bankruptcy Code, 2016, involving a dispute between an Operational Creditor and a Corporate Debtor regarding the quality of goods supplied and the existence of a pre-existing dispute.

Summary:
In this case, the Operational Creditor, engaged in trading and import of Coal, filed a Section 9 application seeking initiation of Corporate Insolvency Resolution Process against the Corporate Debtor for non-payment of dues. The dispute arose from a High Seas Sale Agreement for the supply of coal, with the Corporate Debtor alleging poor quality of goods supplied. The Adjudicating Authority dismissed the application citing a pre-existing dispute.

The Appellant argued that the delivery of coal was completed as per the Sale of Goods Act and Bills of Lading Act, evidenced by invoices and onward sales made by the Corporate Debtor. However, the Respondent contended that the coal supplied was of inferior quality, leading to rejection and refund of payment. The Respondent raised a dispute based on emails and debit notes, denying the liability to pay the debt.

The Adjudicating Authority, considering the evidence presented, found a genuine pre-existing dispute between the parties regarding the quality of goods supplied. The judgment referenced the Mobilox case precedent and concluded that the defense raised by the Corporate Debtor was not spurious, justifying the dismissal of the Section 9 application. The judgment emphasized that IBC does not investigate all contractual disputes but requires a plausible defense to reject such applications.

In conclusion, the Tribunal upheld the Adjudicating Authority's decision, dismissing the appeal due to the genuine disputes between the parties. The parties were advised to pursue other legal remedies, and no costs were awarded. The observations made in the judgment were clarified not to prejudice the parties in ongoing appeal proceedings before the Bombay High Court.