2017 (10) TMI 916 - Tri - Companies Law

Corporate insolvency process - process triggered in case there is valid dispute - Held that - The quality issue in respect of the huge quantity and value of the raw material has been raised though the respondent has refrained itself from filing claim for damages suffered on account of the quality of goods, as made out from the record relied upon by the respondent. The petitioner in the rejoinder has denied various documents relied upon by the respondent and mainly relies on the balance confirmation received from the respondent on 01.09.2015. It is of the view that the balance confirmation dated 01.09.2015 can at best be the settlement of the account statement in respect of the invoices for which the goods were accepted, but in the account books, there cannot possibly be entries of the damages suffered on account of return of defective material of huge value. The serious determination is required for the losses caused in respect of goods of inferior quality remained lying in the premises of the respondent for quite some time. It is averred by the respondent that due to defective raw material, it affected the business of the respondent. The insolvency resolution process cannot be triggered in case there is dispute of even part of the claim i.e. with regard to the three of the invoices of the year 2013. The present is a case where there was an existing dispute even before the issuance of the demand notice thus disentitling the petitioner to an order of admission. Neither in the petition nor in the rejoinder, the petitioner has indicated about the previous dispute whereunder the petitioner accepted return of the damaged material, though reference is made to various entries from the ledger book of the petitioner showing adjustment in respect of the goods returned. In fact the petitioner even denied the documents from Annexure R-1 to R-9 relied upon by the respondent in the written statement, which are of the year 2014. These facts indicate that the matter needs to be tried in a Civil Suit or by some other appropriate remedy. Thus the instant petition is rejected.

Issues Involved:
1. Jurisdiction and territorial scope.
2. Existence and validity of purchase orders and invoices.
3. Dispute regarding the quality and quantity of goods supplied.
4. Confirmation of outstanding balance and payments made.
5. Compliance with the Insolvency & Bankruptcy Code (IBC) procedural requirements.
6. Substitution of the Interim Resolution Professional (IRP).
7. Existence of a pre-existing dispute.
8. Applicability of Section 11 of the IBC.
9. Timeliness and validity of demand notice and response.

Issue-wise Analysis:

1. Jurisdiction and Territorial Scope:
The Tribunal established that the Respondent-Corporate Debtor is incorporated and has its registered office within the Tribunal's territorial jurisdiction, thus affirming its authority to adjudicate the matter.

2. Existence and Validity of Purchase Orders and Invoices:
The Respondent-Corporate Debtor placed purchase orders with the Petitioner, and goods were supplied as per these orders. The Petitioner presented invoices amounting to ?59,94,624/- and claimed additional interest.

3. Dispute Regarding Quality and Quantity of Goods Supplied:
The Respondent raised a dispute about the quality of goods supplied, citing issues such as cracks in the material. Evidence included emails, quality lab reports, and minutes of meetings between the parties. The Respondent also highlighted that part of the material was returned due to quality issues, and this was acknowledged by the Petitioner.

4. Confirmation of Outstanding Balance and Payments Made:
The Petitioner claimed an outstanding balance of ?65,67,731/- as of 31.03.2015, which was later confirmed by the Respondent as ?63,19,873/-. Payments amounting to ?5,74,457/- were made by the Respondent, leaving an unpaid balance of ?57,45,416/-.

5. Compliance with the Insolvency & Bankruptcy Code (IBC) Procedural Requirements:
The Petitioner complied with the procedural requirements under the IBC by sending a demand notice and filing the application in the prescribed form. The Petitioner also provided a certificate from Punjab National Bank confirming no payments were received from the Respondent during the relevant period.

6. Substitution of the Interim Resolution Professional (IRP):
Following the admission of an application by Punjab National Bank against the Petitioner, Mr. Khandelwal, the appointed IRP, sought to substitute his name in the present case. The Tribunal allowed this substitution, recognizing his authority under Section 25(2)(b) of the IBC to represent the Corporate Debtor.

7. Existence of a Pre-existing Dispute:
The Tribunal examined various communications and documents provided by the Respondent, indicating a pre-existing dispute regarding the quality of goods supplied. This included emails, expert reports, and minutes of meetings from 2014, which predated the demand notice.

8. Applicability of Section 11 of the IBC:
The Tribunal clarified that Section 11 of the IBC, which bars a corporate debtor undergoing insolvency resolution from initiating another insolvency process, did not apply in this case as the petition was initiated before the appointment of the IRP.

9. Timeliness and Validity of Demand Notice and Response:
The Petitioner sent a demand notice on 06.06.2017, which was delivered to the Respondent on 09.06.2017. The Respondent's response, sent on 17.06.2017, was received by the Petitioner on 21.06.2017. The Tribunal noted that although the response was received after the 10-day period stipulated in the IBC, the existence of a pre-existing dispute was evident from earlier communications.

Conclusion:
The Tribunal rejected the petition, concluding that there was a pre-existing dispute regarding the quality of goods supplied, which disentitled the Petitioner from an order of admission under the IBC. The matter was deemed more appropriate for resolution through a civil suit or other remedies. All miscellaneous applications were disposed of, with no order as to costs.

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