2023 (10) TMI 604 - AT - Insolvency and Bankruptcy

Rejection of section 9 application - initiation of CIRP - existence of genuine pre-existing dispute surrounding the debt claimed by the Operational Creditor to be due and payable to them by the Corporate Debtor or not - HELD THAT - The existence of dispute and its communication to the Operational Creditor is therefore statutorily provided for in Section 8. In the present case, it is an undisputed fact that the demand notice was issued by the Operational Creditor on 30.07.2018 and notice of dispute raised by the Corporate Debtor on 09.08.2018. It is also an undisputed fact in the present matter that the Operational Creditor did not receive any payment from the Corporate Debtor and therefore proceeded to file an application under Section 9 of IBC. It is a well settled proposition that for a pre-existing dispute to be a ground to nullify an application under Section 9, the dispute raised must be truly existing at the time of filing a reply to notice of demand as contemplated by Section 8(2) of IBC or at the time of filing the Section 9 application. The Adjudicating Authority has taken note of the correspondences exchanged between the two parties prior to the Section 8 demand notice to determine the issue of pre-existing dispute. Two of such communications dated 29.04.2018 and 30.04.2018 sent by the Corporate Debtor to the Operational Creditor have been reproduced at para 18 of the impugned order. From the email of 29.04.2018, it is clear that the Corporate Debtor gave opportunities to the Operational Creditor to sit across the table to sort out their problems amicably - A holistic analysis of the emails leads us to the inescapable conclusion that genuine pre-existing disputes were there and the Adjudicating Authority therefore committed no error in drawing similar conclusion of pre-existing disputes. It is well settled that in Section 9 proceeding, there is no need to enter into final adjudication with regard to existence of dispute between the parties regarding operational debt. For such disputed operational debt, Section 9 proceeding under IBC cannot be initiated at the instance of the Operational Creditor. The Adjudicating Authority has therefore correctly noted that the conditions laid down in section 9 having not been fulfilled, the application deserved to be rejected. There are no reasons to disagree with the findings of the Adjudicating Authority - the Adjudicating Authority did not commit any error in rejecting the Section 9 Application filed by the Appellant - appeal dismissed.

Summary

Issues Involved:

1. Whether there was a pre-existing dispute between the parties.
2. Whether the rejection of the Section 9 application by the Adjudicating Authority was justified.

Summary:

Issue 1: Pre-existing Dispute

The Appellant (Operational Creditor) filed an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) against the order of the Adjudicating Authority (National Company Law Tribunal, Jaipur Bench) which rejected their Section 9 application for initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Corporate Debtor had entered into contracts with Amrop India Consultants Pvt. Ltd. (AICPL) for filling two vacancies, and AICPL later transferred its business to the Appellant through a Slump Sale Agreement. The Appellant claimed payment for services rendered, which the Corporate Debtor denied, citing deficiencies in service and raising a counter-claim of Rs.137.53 lakh. The Corporate Debtor's emails and communications prior to the Section 8 demand notice indicated disputes regarding the quality of services provided. The Adjudicating Authority found these communications sufficient to establish a pre-existing dispute, thus rejecting the Section 9 application.

Issue 2: Justification of Rejection

The Appellant argued that the Adjudicating Authority erred in concluding a pre-existing dispute based on emails unrelated to the first invoice. They contended that the first invoice was due upon signing the contract and was not linked to service quality. However, the Respondent maintained that the contract was composite, and the Operational Creditor's failure to meet specifications justified their counter-claim and non-payment. The Adjudicating Authority, after examining the facts and correspondences, concluded that genuine pre-existing disputes existed, thus fulfilling the conditions under Section 9(5)(ii)(d) of IBC for rejecting the application. The Tribunal agreed with this finding, emphasizing that the disputes were not spurious or illusory and that the Adjudicating Authority was correct in its decision. Consequently, the appeal was dismissed, allowing the Appellant to pursue other legal remedies.