2024 (1) TMI 458 - AT - Insolvency and Bankruptcy

Maintainability of Section 9 application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - pre-existing dispute between the parties - Whether any operational debt qua the Corporate Debtor has been proven to have become due and payable and if there has been a default in the payment thereof and whether there is any pre-existing dispute between the parties? - HELD THAT - The Operational Creditor has admitted that the date of default had initially been inadvertently entered as 27.08.2016 in the Section 8 demand notice. In view of the last payment having been made on 28.04.2017, the fresh period of limitation would start from that date and the Operational Creditor was entitled for taking benefit of 3 years period of limitation from the date of last payment. Therefore, the Section 9 application was filed well within time. Hence the objection on the ground of limitation raised by the Corporate Debtor basis the date of default mentioned in the demand notice while choosing to ignore the date of default shown in the Section 9 application lacks merit. Keeping in mind the settled position of law as laid down in the Mobilox judgment 2017 (9) TMI 1270 - SUPREME COURT , it is amply clear that there exists a pre-existing dispute with respect to the computation of claims by the Operational Creditor qua the Corporate Debtor in the backdrop of an arrangement which had come into existence following a meeting held on 28.08.2012. For such disputed operational debt, Section 9 proceeding under IBC cannot be initiated at the instance of the Operational Creditor. Where Operational Creditor seeks to initiate insolvency process against a Corporate Debtor, it can only be done in clear cases where no real dispute exists between the two which is not so borne out given the facts of the present case. It is well settled that in Section 9 proceeding, the Adjudicating Authority is not to enter into final adjudication with regard to existence of dispute between the parties regarding the operational debt. What has to be looked into is whether the defence raises a dispute which needs further adjudication by a competent court - On application of the case of Mobilox by the Hon ble Supreme Court to the facts of the present case, it is clear that defence raised by the Corporate Debtor in their reply to the Section 8 demand notice and detailed reply filed in Section 9 application is not illusory or moonshine and that the nature of dispute raised was such that it required adjudication by competent court. Thus, 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. Appeal dismissed.

Summary

Issues Involved:
1. Limitation Period for Filing Section 9 Application.
2. Existence of Operational Debt and Default.
3. Pre-existing Dispute Between Parties.

Summary:

1. Limitation Period for Filing Section 9 Application:
The Adjudicating Authority held the Section 9 application to be non-maintainable on grounds of limitation, stating that the date of default was 27.08.2016, and the application filed on 01.10.2019 exceeded the three-year limitation period. The Appellant argued that the last part-payment was made on 28.04.2017, which should be considered the date of default, making the application timely. The Tribunal found merit in the Appellant's argument, noting that the fresh period of limitation starts from the last payment date, thus the application was filed within the limitation period.

2. Existence of Operational Debt and Default:
The Appellant claimed that the Corporate Debtor requested invoices for salvageable and non-salvageable assets on 18.11.2016, and only a part payment was made. The Corporate Debtor contended that no dues were payable and that the claims were fabricated. The Tribunal observed that the invoices were not disputed until the Section 8 demand notice, indicating an admission of debt. However, the Tribunal also noted that the Adjudicating Authority found the claim for salvageable and non-salvageable items to be untenable based on the terms of the Agency Agreements.

3. Pre-existing Dispute Between Parties:
The Corporate Debtor argued that there was a pre-existing dispute regarding the computation of the commission, citing a meeting on 28.08.2012 where a revised commission structure was allegedly agreed upon. The Appellant denied the existence of such a meeting. The Tribunal agreed with the Adjudicating Authority that the minutes of the meeting signed by Shri Nitesh Agrawal indicated a pre-existing dispute. The Tribunal emphasized that the Adjudicating Authority is not to adjudicate the dispute but to determine if a genuine dispute exists, which was found to be the case here.

Conclusion:
The Tribunal dismissed the appeal, agreeing with the Adjudicating Authority's finding of a pre-existing dispute, thus making the Section 9 application non-maintainable under IBC. However, it disagreed with the finding that the application was time-barred. The Appellant was advised to seek remedies for contractual disputes in an appropriate forum.