2025 (3) TMI 128 - AT - IBC

Admission of Section 9 application - whether there is any infirmity in the impugned order passed by the Adjudicating Authority in allowing the Section 9 application on the ground that operational debt which was due and payable stood established by the Operational Creditor and that a default had been committed by the Corporate Debtor in respect of the said debt the liability having been admitted without disputing the debt? - HELD THAT - It cannot be construed in any manner that there was a categorical admission of debt and default by the Corporate Debtor. The first letter of 09.03.2020 clearly states that freight is payable subject to receipt of debit payment note as per shipping bill compliant with RBI guidelines and C.A. guidelines. Besides not confirming the demurrage the said letter also states that they would like to arrange meeting to discuss and try to resolve the issue. It cannot be unmindful of the fact that the Operational Creditor had been asked to provide documents and debit note as per RBI and other guidelines for the vessel/freight charges. That the issue of the debt was embroiled in dispute is also evident from the fact the Operational Creditor had themselves issued a Legal Notice 11.10.2022. Moreover pursuant to the Legal Notice replies were sent by the Corporate Debtor dated 17.10.2022 and 19.11.2022 wherein it has been asserted that the outstanding claimed by the Operational Creditor is not in their records. Further payment was stated to have been already done by Samruddha as freight negotiation and payment of the vessel were activities handled by Samruddha. This letter dated 19.11.2022 clearly mentioned that the matter of outstanding debt would be resolved with the help of Samruddha. It is pertinent to note that these letters addressed to the Operational Creditor by the Corporate Debtor were also endorsed to Samruddha and BST. Once plausibility of a pre-existing dispute is noticed what has to be looked into is whether the dispute needs further adjudication by a competent court. The Adjudicating Authority is not to enter into final adjudication with regard to existence of dispute between the parties regarding the operational debt in terms of the statutory construct of the IBC. In the present case too the freight charges having not been admitted by the Corporate Debtor it is not a case wherein debt and default has been unequivocally established which is essential for entertaining a Section 9 application. Demurrage charges - HELD THAT - It is found from the impugned order that the Adjudicating Authority noted that on 25.05.2017 the Corporate Debtor had raised an invoice for USD 22, 942.74 towards Address Commission earned and that the Operational Creditor had also raised a Debit Note on 27.12.2017 for USD 242, 772.19 towards demurrage dues. It was also noted by the Adjudicating Authority that the laytime calculations in support of their demurrage dues were confirmed by the broker of the Corporate Debtor vide email dated 11.10.2017. The Adjudicating Authority has further concluded after noticing the communication from the Corporate Debtor dated 09.03.2020 that the Corporate Debtor has admitted that there exist demurrage charges to be paid to the Operational Creditor however the same only needed to be confirmed after arranging a meeting with the Operational Creditor. The Corporate Debtor had not admitted the liability to pay demurrages. It is therefore clear that payment on account of demurrage was disputed by the Corporate Debtor. Under such circumstances we are not inclined to agree that there was any admission of liability on the part of the Corporate Debtor on payment of demurrage and hence this defence taken by the Corporate Debtor cannot be disregarded as vexatious or feeble in nature. In the present factual matrix the defence raised by the Corporate Debtor therefore cannot be held to be moonshine spurious hypothetical or illusory. In a Section 9 petition the Corporate Debtor enjoys the right to dispute the debt including the quantum of payment. From the correspondence placed on record it is clear that dispute was continuing between the parties regarding outstanding claim both in respect of freight and demurrage. Once the debt has been disputed the question of default does not arise. For such disputed operational debt Section 9 proceeding under IBC cannot be initiated at the instance of the Operational Creditor - When 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. The conditions laid down in Section 9 having not been fulfilled the application deserved to be rejected. Conclusion - The Corporate Debtor was not liable for the claimed debt due to the existence of a dispute and lack of admission of liability. The Adjudicating Authority has erroneously allowed the application filed under Section 9 of the IBC by the Respondent. The impugned order is set aside. The Appeal is allowed.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the operational debt claimed by the Operational Creditor was due and payable by the Corporate Debtor.
Whether the Corporate Debtor had admitted the liability for the debt, thus justifying the initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code (IBC).
Whether there was a pre-existing dispute between the parties that would preclude the initiation of CIRP.
Whether the claim was time-barred under the Limitation Act.
Whether demurrage charges constitute an operational debt under Section 5(21) of the IBC.

ISSUE-WISE DETAILED ANALYSIS

1. Existence of Operational Debt and Admission of Liability

Relevant Legal Framework and Precedents: Sections 8 and 9 of the IBC outline the process for initiating CIRP by an Operational Creditor. The Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. case provides guidance on the existence of disputes and admission of debt.
Court's Interpretation and Reasoning: The Tribunal analyzed the communications between the parties to determine whether the Corporate Debtor had admitted the debt. The Tribunal found that the Corporate Debtor's communications did not constitute a categorical admission of debt.
Key Evidence and Findings: The Tribunal examined various letters and emails exchanged between the parties. The Corporate Debtor's communications indicated a willingness to discuss and resolve issues but did not amount to an admission of liability.
Application of Law to Facts: The Tribunal applied the principles from the Mobilox case, focusing on whether there was a plausible contention requiring further investigation.
Treatment of Competing Arguments: The Tribunal considered the Operational Creditor's argument that the Corporate Debtor had admitted liability but found that the evidence did not support this claim.
Conclusions: The Tribunal concluded that the Corporate Debtor had not admitted the debt, and there was a pre-existing dispute, thus precluding the initiation of CIRP.

2. Pre-existing Dispute

Relevant Legal Framework and Precedents: The existence of a dispute is a critical factor under Section 9 of the IBC. The Mobilox case provides guidance on identifying genuine disputes.
Court's Interpretation and Reasoning: The Tribunal found that there was a genuine dispute regarding the debt, as evidenced by the communications and the involvement of third parties in the transaction.
Key Evidence and Findings: The Tribunal noted the involvement of Samruddha, BST, and Globe Chart, which complicated the transaction and contributed to the dispute.
Application of Law to Facts: The Tribunal applied the Mobilox principles, determining that the dispute was not spurious or illusory.
Treatment of Competing Arguments: The Tribunal acknowledged the Operational Creditor's position but found the Corporate Debtor's defense plausible.
Conclusions: The Tribunal determined that a pre-existing dispute existed, preventing the initiation of CIRP.

3. Limitation and Time-barred Claims

Relevant Legal Framework and Precedents: The Limitation Act and its applicability to IBC proceedings, as affirmed in Dena Bank v. C. Shiva Kumar Reddy.
Court's Interpretation and Reasoning: The Tribunal considered the timing of the claims and the acknowledgment of debt under Section 18 of the Limitation Act.
Key Evidence and Findings: The Tribunal noted that the Corporate Debtor's acknowledgment of debt in March 2020 extended the limitation period.
Application of Law to Facts: The Tribunal applied the principles of the Limitation Act to determine the timeliness of the claim.
Treatment of Competing Arguments: The Tribunal found that the acknowledgment of debt extended the limitation period, countering the Corporate Debtor's argument of a time-barred claim.
Conclusions: The Tribunal concluded that the claim was not time-barred due to the acknowledgment of debt.

4. Demurrage Charges as Operational Debt

Relevant Legal Framework and Precedents: Section 5(21) of the IBC defines operational debt, and the Tribunal considered whether demurrage charges fell within this definition.
Court's Interpretation and Reasoning: The Tribunal noted that demurrage charges were disputed and not crystallized, thus not constituting operational debt.
Key Evidence and Findings: The Tribunal found that the Corporate Debtor had not confirmed the demurrage charges, and the claim was not substantiated.
Application of Law to Facts: The Tribunal applied the legal definition of operational debt to the facts, finding that demurrage charges did not qualify.
Treatment of Competing Arguments: The Tribunal considered the Operational Creditor's claim but found the Corporate Debtor's defense valid.
Conclusions: The Tribunal concluded that demurrage charges were not operational debt and could not justify the initiation of CIRP.

SIGNIFICANT HOLDINGS

Core Principles Established: The existence of a genuine dispute precludes the initiation of CIRP under Section 9 of the IBC. Demurrage charges do not constitute operational debt unless crystallized and undisputed.
Final Determinations on Each Issue: The Tribunal set aside the impugned order, concluding that the Corporate Debtor was not liable for the claimed debt due to the existence of a dispute and lack of admission of liability.
Verbatim Quotes of Crucial Legal Reasoning: The Tribunal referenced the Mobilox judgment, emphasizing that a dispute must be genuine and not spurious, hypothetical, or illusory.

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