2024 (6) TMI 18 - AT - Insolvency and Bankruptcy

Admissibility of section 9 application - initiation of CIRP - existence of pre-existing disputes between the parties or not. Pre-existing disputes - HELD THAT - The issue of a pre-existing dispute is no longer res integra and has been elucidated and reiterated by the Hon ble Supreme Court of India in Mobilox Innovations Pvt Ltd Vs Kirusa Software Pvt Ltd 2017 (9) TMI 1270 - SUPREME COURT . The concept of pre-existing dispute has been elaborated in detail and the Hon ble Supreme Court had observed ' Going by the aforesaid test of existence of a dispute , it is clear that without going into the merits of the dispute, the appellant has raised a plausible contention requiring further investigation which is not a patently feeble legal argument or an assertion of facts unsupported by evidence. The defense is not spurious, mere bluster, plainly frivolous or vexatious.' The observations of the Hon ble Supreme Court with regards to a pre-existing dispute qualifies a pre-existing dispute to be a defence which is not spurious, mere bluster, plainly frivolous or vexatious. Thus it enjoins an obligation upon the Adjudicating Authority to arrive at a prima facie satisfaction that a dispute indeed exists with regards to quality or price, which in common parlance and in matters of civil jurisdiction, would be regarded as a triable issue of fact. However, it does not call upon the Adjudicating Authority to venture into the appreciation of the merit of pre- existing dispute and embank upon the adjudication of rival contentions of parties. What was required to be observed was as to if from the material on record if there exist claims or counter claims in respect of amount to be paid and if the defence is not spurious or mere bluster. Even if no reply to the demand notice was given, it would have not precluded the corporate debtor to bring immediately before the Adjudicating Authority to establish a pre-existing dispute which would lead to rejection of Section 9 petition. Thus the underline rational with regard to a petition of pre existing dispute is clearly that as long as there are trivial issues of facts which requires consideration and adjudication, the same shall be recorded a pre-existing dispute to reject the petition filed under Section 9 of the IBC. Admittedly CD also filed a petition under Section 9 of Arbitration and Conciliation Act before High Court being Arbitration Petition No.532/2022 which was prior in time to filing of petition under Section 9 and vide order dated 22.09.2022 the High Court of Calcutta with consent of all parties, including the operational creditor appointed an arbitrator to adjudicate upon all disputes between the parties - The fact the Operational Creditor had raised final bill of Rs.17,01,26,320/- upon the principal employer would show the joint measurements had taken place and it could establish an amount of Rs.17 crores approximately was due and payable for the work done by the Corporate Debtor under the sub-contract, which was admittedly awarded by the Operational Creditor to the Corporate Debtor. There was a pre-existing dispute and hence such disputes cannot be decided in a summary procedure and thus petition under section 9 so filed by the Operational Creditor needs to be dismissed and is accordingly so directed. Appeal allowed.

Issues Involved:
1. Pre-existing dispute between the parties.
2. The timing and validity of the Section 8 IBC demand notice.
3. The jurisdiction of the Adjudicating Authority in evaluating the merits of the dispute.
4. The relevance of the final bill and joint measurements.
5. The impact of the arbitration proceedings on the Section 9 IBC petition.

Issue-wise Detailed Analysis:

1. Pre-existing dispute between the parties:
The Tribunal examined whether there was a pre-existing dispute between the operational creditor (OC) and the corporate debtor (CD). The Tribunal referred to the Supreme Court's decision in *Mobilox Innovations Pvt Ltd vs Kirusa Software Pvt Ltd*, which clarified that a pre-existing dispute must be a plausible contention requiring further investigation and not a patently feeble legal argument or assertion unsupported by evidence. The Tribunal found that the CD had raised substantial disputes regarding the amounts claimed by the OC, including issues related to statutory taxes, rental charges, and maintenance expenses. These disputes were documented in various communications between the parties, indicating that the disputes were genuine and not frivolous.

2. The timing and validity of the Section 8 IBC demand notice:
The Tribunal noted that the OC issued a Section 8 IBC demand notice on 15.07.2022, after the CD had already sent a final bill on the same day at 11:46 AM. The demand notice was issued later that night at 9:24 PM. The Tribunal emphasized that the timing of the demand notice was crucial, as the CD had already raised disputes and issued a final bill before the OC's demand notice. This sequence of events indicated that the disputes were pre-existing and not an afterthought to evade liability.

3. The jurisdiction of the Adjudicating Authority in evaluating the merits of the dispute:
The Tribunal criticized the Adjudicating Authority for delving into the merits of the dispute and evaluating the correctness of the CD's defense. The Tribunal reiterated that the Adjudicating Authority's role is limited to determining the existence of a dispute and not to adjudicate on the merits of the case. The Tribunal cited the Supreme Court's caution in *Raj Ratan Babulal Agarwal vs Solar Tech's India Pvt Ltd*, which warned against overstepping the boundaries of jurisdiction, as it could lead to a miscarriage of justice and frustrate the objectives of the IBC.

4. The relevance of the final bill and joint measurements:
The Tribunal highlighted the significance of the final bill dated 21.06.2022 raised by the OC on the principal employer, NHIDCL, which matched the bill raised by the CD on 15.07.2022. This indicated that joint measurements had taken place, and a substantial amount was due for the work completed by the CD. The Tribunal found that the Adjudicating Authority failed to consider this crucial evidence, which further substantiated the existence of a pre-existing dispute.

5. The impact of the arbitration proceedings on the Section 9 IBC petition:
The Tribunal noted that the CD had invoked the arbitration clause and filed a Section 9 Arbitration petition before the High Court of Kolkata, which referred the disputes to arbitration. The OC's consent to arbitration was seen as evidence of the existence of a dispute. The Tribunal concluded that the ongoing arbitration proceedings should have led to the dismissal of the Section 9 IBC petition, as the disputes were already being adjudicated in a competent forum.

Conclusion:
The Tribunal found that there was a pre-existing dispute between the parties, and the Adjudicating Authority erred in admitting the Section 9 IBC petition. The Tribunal emphasized that such disputes should not be decided summarily under the IBC and directed the dismissal of the petition. The appeal was allowed, and all pending applications were disposed of accordingly.

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