2019 (9) TMI 963 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor - Section 9 of Insolvency and Bankruptcy Code 2016 read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016 - whether the Operational Creditor proved that the claim made by them is covered under the category of Operational debt as defined under Section 5 (21) of the Code 2016? HELD THAT - Considering the arguments of the Corporate Debtor which primarily rests on the ground of a pre-existing dispute prior to the filing of the application and in the circumstances the application should be dismissed as not maintainable it is necessary to ascertain the definition of dispute . In an application filed under Section 9 of the Code Tribunal is not supposed to examine the merits of the dispute nor the adequacy of the dispute is to be seen. However in matters under Section 9 the tribunal is only to see that a dispute pre-exists and that the dispute is not vague got up or raised for the first time to evade the liability. The documents on record clearly show that the dispute was raised by the respondent prior to the demand notice issued under Section 8 (1) of the Code. Section 9 (5) of the Code provides that adjudicating authority shall reject the application if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility - this application fails and the same is hereby rejected and dismissed.

Summary

Issues Involved:
1. Whether the claim made by the Operational Creditor qualifies as an "Operational Debt" under Section 5(21) of the Insolvency and Bankruptcy Code, 2016.
2. Whether there was a pre-existing dispute between the parties before the issuance of the demand notice under Section 8(1) of the Code.
3. Whether the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 is maintainable.

Issue-wise Detailed Analysis:

1. Whether the claim made by the Operational Creditor qualifies as an "Operational Debt" under Section 5(21) of the Insolvency and Bankruptcy Code, 2016:
The Operational Creditor, M/s Starlog Enterprises Limited, filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, seeking to initiate the Corporate Insolvency process against the Corporate Debtor, M/s Sarens Heavy Lift India Private Limited. The claim included charges for the hire of a crane, damages due to an accident, and revenue loss. The Tribunal examined whether these claims fall under the definition of "Operational Debt" as per Section 5(21) of the Code, which includes "a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government any State Government or any Local Authority."

The Tribunal concluded that the claims for repair, renovation, refurbishment charges, monthly hire charges, and revenue loss did not qualify as "Operational Debt" since there was no supportive evidence reflecting the performance of the contract and completion of work as per the terms of the Work Order.

2. Whether there was a pre-existing dispute between the parties before the issuance of the demand notice under Section 8(1) of the Code:
The Corporate Debtor argued that the claims were disputed and not payable due to non-completion of the Work Order. The Tribunal referred to Section 5(6) of the Code, which defines "dispute" to include a suit or arbitration proceedings relating to the existence of the amount of debt, the quality of goods or service, or the breach of a representation or warranty. The Tribunal also cited the Supreme Court's ruling in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited, which mandates the adjudicating authority to determine the existence of an "operational debt," whether the debt is due and payable, and whether there is a pre-existing dispute.

The Tribunal found that the Corporate Debtor had raised disputes regarding the delivery and performance of the contract through correspondences dated 26.12.2017, 10.08.2018, 06.09.2018, and 18.09.2018, prior to the issuance of the demand notice on 21.09.2018. Therefore, the Tribunal concluded that the dispute was not vague, got up, or raised for the first time to evade liability.

3. Whether the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 is maintainable:
Given the pre-existing dispute and the nature of the claims not qualifying as "Operational Debt," the Tribunal held that the application under Section 9 of the Code was not maintainable. Section 9(5) of the Code mandates the rejection of the application if a notice of dispute has been received by the Operational Creditor or there is a record of dispute in the information utility.

Conclusion:
The Tribunal rejected and dismissed the application filed by the Operational Creditor under Section 9 of the Insolvency and Bankruptcy Code, 2016, on the grounds of a pre-existing dispute and the claims not qualifying as "Operational Debt." The Tribunal clarified that the observations made in the order should not be construed as an expression of opinion on the merits of the controversy, and the rights of the applicant before any other forum shall not be prejudiced by this dismissal.