2019 (7) TMI 1188 - AT - Insolvency and Bankruptcy

Admissibility of petition - initiation of CIRP - application rejected on the ground that the claim of the Appellant falls within the ambit of disputed claim - Section 8(1) of the I B Code - HELD THAT - From bare perusal of the impugned order dated 19th September, 2018, it will be evident that the Adjudicating Authority have noticed the aforesaid disputed fact to come to the conclusion and hold that the claim amount raised by the Appellant is a disputed claim - In an application under Section 9, it is always open to the Corporate Debtor to point out pre-existence of dispute. It is to be shown that the dispute was raised prior to the issuance of demand notice under Section 8(1). In Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software (P) Limited 2017 (9) TMI 1270 - SUPREME COURT , the Hon ble Supreme Court held that the existence of the dispute and/or the suit or arbitration proceeding must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice, as the case may be. Thus, the existence of dispute must be pre-existing i.e. it must exist before the receipt of the demand notice or invoice. If it comes to the notice of the Adjudicating Authority that the operational debt is exceeding ₹ 1 lakh and the application shows that the aforesaid debt is due and payable and has not been paid, in such case, in absence of any existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt , the application under Section 9 cannot be rejected and is required to be admitted. The Respondent has defaulted to pay more than ₹ 1 Lakh and in absence of any pre-existing dispute, and the record being complete, the application under Section 9 preferred by the Appellant was fit to be admitted - appeal allowed.

Summary

Issues Involved:
Application under Section 9 of the Insolvency and Bankruptcy Code, 2016; Rejection of application by Adjudicating Authority on the ground of disputed claim; Existence of pre-existing dispute before issuance of demand notice under Section 8(1); Arbitration proceedings initiated after demand notice; Adjudicating Authority's role in examining Section 9 application; Interpretation of "disputed claim" under the Code; Adjudicating Authority's duty to admit or reject application based on specified conditions.

Analysis:
The case involved an appeal against the rejection of an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 by the Adjudicating Authority on the grounds of a disputed claim. The Appellant, 'Ahluwalia Contracts (India) Limited,' filed the application against 'Raheja Developers Limited,' the Corporate Debtor. The Adjudicating Authority rejected the application citing that the claim fell within the ambit of a disputed claim. It was noted that arbitration proceedings had been initiated by the Respondent after the demand notice was issued under Section 8(1) of the Code.

The Appellant argued that there was no pre-existing dispute at the time of issuing the demand notice, as the arbitration proceedings were initiated by the Respondent after the notice was sent. The Appellant highlighted various communications and bill certifications to support their claim for outstanding payments. The Respondent, on the other hand, alleged that the Appellant failed to complete the work, leading to additional expenses incurred by the Respondent.

The Tribunal referred to relevant legal precedents, including the Supreme Court judgments in 'Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software (P) Limited' and 'Innoventive Industries Ltd. v. ICICI Bank and Anr.,' to determine the criteria for admitting an application under Section 9. It was emphasized that the existence of a dispute must be pre-existing before the issuance of the demand notice or invoice. The Tribunal held that in the absence of a pre-existing dispute and with the debt exceeding the threshold, the application should have been admitted.

The Tribunal concluded that the Adjudicating Authority erred in rejecting the claim solely on the basis of a disputed claim without considering the timing of the arbitration proceedings. The case was remitted back to the Adjudicating Authority for admission of the application under Section 9, with directions for the Corporate Debtor to settle the matter prior to admission. The appeal was allowed with observations and no costs were imposed.