2017 (10) TMI 981 - Tri - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - Held that - There being existence of dispute , we hold that the petition under section 9 preferred by respondent- Operational Creditor was not maintainable. For the reasons aforesaid, we set aside the impugned order dated 1st June, 2017 passed by the Ld. Adjudicating Authority, Chennai Bench in Company Petition. In effect, order (s), if any, passed by Ld. Adjudicating Authority appointing any Interim Resolution Professional or declaring moratorium, freezing of account, if any, and all other order (s) passed by Adjudicating Authority pursuant to impugned order and action, if any, taken by the Interim Resolution Professional , including the advertisement, if any, published in the newspaper calling for applications all such orders and actions are declared illegal and are set aside. The application preferred by Respondent under Section 9 of the I&B Code, 2016 is dismissed. Learned Adjudicating Authority will now close the proceeding. The appellant company is released from all the rigour of law and is allowed to function independently through its Board of Directors from immediate effect. Learned Adjudicating Authority will fix the fee of Interim Resolution Professional , if appointed, and the Respondents will pay the fees of the Interim Resolution Professional, for the period he has functioned. The appeal is allowed with aforesaid observation and direction.

Summary

Issues:
- Violation of natural justice in passing the impugned order without notice to the appellant
- Lack of notice under section 8 of the Insolvency and Bankruptcy Code
- Existence of a dispute regarding the debt amount
- Interpretation of the term "dispute" under the Insolvency and Bankruptcy Code

Analysis:
1. The Respondent, an Operational Creditor, filed an application under section 9 of the Insolvency and Bankruptcy Code against the Appellant, a Corporate Debtor. The National Company Law Tribunal admitted the application and initiated the Insolvency Resolution Process, which the Appellant challenged mainly on grounds of violation of natural justice, lack of notice under section 8, and the existence of a dispute regarding the debt amount.

2. The Respondent claimed to have served a notice on the Appellant, but it was returned due to an incorrect address. The Tribunal found that the notice was sent to a different address than the Registered Office of the Corporate Debtor. The Tribunal noted that the Appellant had updated its address with the Registrar of Companies, and it was the duty of the Operational Creditor to ensure the correct address before filing the application under section 9 of the Code.

3. The Tribunal cited a previous decision where it was held that the Adjudicating Authority must issue a limited notice to the corporate debtor before admitting a case to ascertain the existence of a default. In this case, since no notice was issued before the admission of the application, the impugned order was deemed to be in violation of natural justice.

4. Regarding the dispute over the debt amount, the Appellant had raised concerns about the quality of service provided by the Operational Creditor, leading to a genuine dispute between the parties. The Tribunal referred to another case to define the term "dispute" under the Code, emphasizing that it must relate to specific aspects such as the amount of debt, quality of goods or services, or breach of representation or warranty.

5. Based on the existence of a genuine dispute and the failure to adhere to principles of natural justice, the Tribunal set aside the impugned order, dismissed the application under section 9, released the Appellant from all legal constraints, and allowed it to function independently. The Tribunal also directed the payment of fees to the Interim Resolution Professional, if appointed, without any order as to costs.