2024 (9) TMI 1091 - AT - IBC

Maintainability of application u/s 9 of Insolvency and Bankruptcy Code (IBC), 2016 - initiation of insolvency resolution process against the Corporate Debtor for the non-payment of dues arising from supply of manpower services - pre-existing dispute between the parties or not - HELD THAT - It is well-settled law that for an Application under Section 9 of the IBC to be admitted, the Operational Creditor must demonstrate that there is a debt and a default as defined under the IBC. However, if the Corporate Debtor can prove the existence of a bonafide dispute regarding the debt prior to the issuance of the demand notice under Section 8, the Application must be dismissed. In the present case, the emails dated 18.12.2018, 22.05.2019, 26.05.2019 and 25.08.2019 clearly indicate that the Respondent had raised concerns regarding the adequacy of services provided by the Appellant, including manpower shortages and security lapses. These communications occurred prior to the issuance of the demand notice, which was issued on 14.01.2020, and provides sufficient evidence of a pre-existing dispute. The main ground basis which the Appeal cannot be accepted is existence of pre-existing dispute, which is noted in series of email exchange of emails. In such situations of pre-existing disputes, Hon ble Supreme Court in Mobilox Innovation Pvt. Ltd. Vs. Kirusa Software Private Limited 2017 (9) TMI 1270 - SUPREME COURT had held ' It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the existence of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties.' The Corporate Debtor had raised a plausible contention about a pre- existing dispute, which in the instant case is not a moonshine or feeble legal argument. Therefore, the Adjudicating Authority was not incorrect to reject the Application filed under Section 9 of the Code. Given the existence of a bonafide dispute, this Tribunal finds no reason to interfere with the Impugned Order of the Adjudicating Authority. The Impugned Order dated 05.03.2024 passed by the Adjudicating Authority is upheld - Appeal dismissed.

Issues Involved:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016.
2. Alleged pre-existing dispute between the parties.
3. Non-payment of dues by the Corporate Debtor.
4. Alleged deficiencies in the services provided by the Operational Creditor.
5. Rejection of the application by the Adjudicating Authority.

Detailed Analysis:

1. Initiation of CIRP Under Section 9 of IBC:

The Appellant, an Operational Creditor, filed an application under Section 9 of the IBC, 2016, seeking initiation of CIRP against the Corporate Debtor due to non-payment of dues arising from the supply of manpower services. The application was dismissed by the Adjudicating Authority on the grounds of a pre-existing dispute.

2. Alleged Pre-Existing Dispute:

The core issue was whether a pre-existing dispute existed between the parties before the issuance of the demand notice under Section 8 of the IBC. The Adjudicating Authority found that there were multiple emails exchanged between the parties, indicating disputes regarding the quality and adequacy of services provided by the Appellant. These emails were dated 18.12.2018, 22.05.2019, 26.05.2019, and 25.08.2019, all predating the demand notice issued on 14.01.2020.

3. Non-Payment of Dues by the Corporate Debtor:

The Appellant claimed that the Corporate Debtor defaulted on payments amounting to approximately Rs. 79 lakhs. The Appellant argued that these amounts were due for services provided and that the Corporate Debtor's failure to pay led to the withdrawal of services. The Respondent countered by stating that a substantial portion of the invoices had already been paid and that the remaining amounts were disputed due to alleged deficiencies in services.

4. Alleged Deficiencies in Services Provided by the Operational Creditor:

The Respondent contended that there were significant deficiencies in the services provided by the Appellant, including incidents of theft, shortage of manpower, and abandonment of services. These issues were communicated through various emails, which the Respondent used to argue that a pre-existing dispute existed. The Appellant, however, argued that these emails were either irrelevant or pertained to different sites and that the issues had been resolved by September 2019.

5. Rejection of the Application by the Adjudicating Authority:

The Adjudicating Authority dismissed the application on the grounds that there was a pre-existing dispute between the parties. The Authority relied on the emails exchanged between the parties, which indicated that the Respondent had raised concerns about the Appellant's performance and the adequacy of manpower services before the issuance of the demand notice. The Appellant's contention that these emails were irrelevant was found unconvincing.

Conclusion:

The Tribunal upheld the Adjudicating Authority's decision, finding that the existence of a bonafide dispute barred the initiation of CIRP under Section 9 of the IBC. The Tribunal cited the Supreme Court's ruling in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd., which held that if a pre-existing dispute is established, the application under Section 9 must be dismissed. The Tribunal concluded that the Respondent had raised a plausible contention about a pre-existing dispute, which was not a moonshine or feeble legal argument, and therefore, the appeal was dismissed.

Order:

The appeal was dismissed, and the Impugned Order dated 05.03.2024 passed by the Adjudicating Authority was upheld. All related IAs pending were closed with no order as to costs.

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