2017 (12) TMI 1451 - AT - Insolvency and Bankruptcy

Corporate insolvency process - existence of a dispute - Held that - Having heard learned counsel for the appellant, while we agree that initiation of Corporate Insolvency Resolution Process under I&B Code cannot be nullified by any order passed by SEBI nor can be a ground to reject an application under Section 9 of the I&B Code but as there is an existence of dispute with regard to the invoices raised by the Appellant- Operational Creditor , we hold that the application under Section 9 of the I&B Code was not maintainable. - Appeal dismissed.

Summary

Issues:
1. Rejection of application under Section 9 of the Insolvency and Bankruptcy Code, 2016 due to the existence of a dispute.
2. Admittance of debt by the Corporate Debtor but failure to make payment.
3. Effect of SEBI order on the Corporate Debtor's financial activities.
4. Existence of an arbitration dispute prior to the notice under the Insolvency and Bankruptcy Code.

Analysis:

1. The appeal was filed by the Operational Creditor against the rejection of their application under Section 9 of the Insolvency and Bankruptcy Code, 2016 by the Adjudicating Authority. The rejection was based on the existence of a dispute between the parties, as highlighted in the order dated 29th July, 2017. The Corporate Debtor, in response to the notice, had raised the issue of an ongoing arbitration proceeding under the Arbitration and Conciliation Act, 1996, which was considered as a valid dispute by the Adjudicating Authority, leading to the dismissal of the application.

2. The Operational Creditor had entered into agreements with the Corporate Debtor for construction projects and raised invoices for the work done. The Corporate Debtor admitted the debt but failed to make the necessary payments. Despite the notices issued under the Companies Act, 1956 and the Insolvency and Bankruptcy Code, the dues remained unpaid, leading to the initiation of insolvency proceedings by the Operational Creditor.

3. The Operational Creditor argued that the SEBI order restricting the Corporate Debtor from alienating or disposing of assets should not impact the insolvency resolution process. The SEBI order directed the Corporate Debtor to refrain from certain financial activities, including asset disposal, except for specific purposes like investor refunds and winding up procedures. This restriction imposed by SEBI did not nullify the insolvency proceedings initiated by the Operational Creditor.

4. The Corporate Debtor highlighted the existence of an arbitration dispute that predated the notice under the Insolvency and Bankruptcy Code. The Adjudicating Authority took cognizance of this dispute and considered it as a valid reason to reject the application under Section 9 of the Code. Despite the Operational Creditor's argument that the initiation of insolvency proceedings should not be affected by external orders or disputes, the existence of a genuine dispute regarding the invoices raised by the Operational Creditor led to the dismissal of the application.

In conclusion, the Appellate Tribunal upheld the decision of the Adjudicating Authority to reject the application under Section 9 of the Insolvency and Bankruptcy Code due to the existence of a dispute. The appeal was dismissed, emphasizing the importance of resolving disputes before proceeding with insolvency proceedings.