2020 (1) TMI 902 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Respondent Corporate Debtor failed to make repayment of debt - existence of debt and dispute or not - Whether the Respondent has brought to the notice of the petitioner the existence of a dispute preceding the receipt of the notice on 27.02.2018? - HELD THAT - In the instant case it cannot be said that a debt at least as far as the outstanding dues towards the cost of DSTBs is concerned is not due and payable in law or in fact. The Respondent cannot shy away from payment of this amount. Therefore the contention of the Respondent that there was a pre-existing dispute cannot be accepted. The Respondent having defaulted in payment of the operational debt the Corporate Insolvency Resolution Process is triggered and the petition under section 9 of the Code is maintainable - The issue accordingly answered in the negative. In view of the finding the petition under section 9 deserves to be admitted. Petition admitted - moratorium declared.

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in the judgment are:

Whether the Respondent brought to the notice of the Petitioner the existence of a dispute preceding the receipt of the demand notice on 27.02.2018?
Whether the Respondent's claim of pre-existing disputes and counterclaims is valid under the Insolvency and Bankruptcy Code, 2016?
Whether the Corporate Insolvency Resolution Process (CIRP) should be initiated against the Respondent?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Existence of a Dispute

Relevant Legal Framework and Precedents: Section 8 of the Insolvency and Bankruptcy Code, 2016 requires that the Corporate Debtor must notify the Operational Creditor of any dispute within 10 days of receiving a demand notice. The judgment references the case of Innoventive Industries Ltd. v. ICICI Bank, which clarifies that a claim means a right to payment even if disputed.
Court's Interpretation and Reasoning: The Tribunal found that the Respondent failed to notify the Petitioner of any dispute within the statutory period of 10 days. The Respondent's email on 28.03.2018, claiming a prior reply, was not substantiated with evidence.
Key Evidence and Findings: The Petitioner issued a demand notice on 16.02.2018, which was served on 27.02.2018. The Respondent's alleged reply dated 08.03.2018 was unsupported by proof of dispatch or receipt.
Application of Law to Facts: The Tribunal applied Section 8 of the Code, determining that the Respondent did not raise a valid dispute within the required timeframe.
Treatment of Competing Arguments: The Respondent argued that there was a pre-existing dispute regarding the quantum of debt and the execution of a second MoU. The Tribunal found these arguments unsubstantiated within the statutory period.
Conclusions: The Tribunal concluded that there was no valid pre-existing dispute brought to the notice of the Petitioner within the statutory period.

Issue 2: Validity of Pre-existing Disputes and Counterclaims

Relevant Legal Framework and Precedents: The judgment refers to the definition of 'claim' under Section 3(6) of the Code and the interpretation of 'default' as per Innoventive Industries Ltd. v. ICICI Bank.
Court's Interpretation and Reasoning: The Tribunal held that the mere existence of a counterclaim or dispute over the amount does not negate the occurrence of default.
Key Evidence and Findings: The Respondent claimed payments made towards CAS activation and alleged overpayment beyond invoice amounts. However, these claims were not substantiated with evidence of acknowledgment from the Petitioner.
Application of Law to Facts: The Tribunal applied the legal principle that a right to payment exists even if disputed, and the default threshold under the Code was met.
Treatment of Competing Arguments: The Respondent's arguments regarding CAS payments and the alleged second MoU were dismissed due to lack of evidence and failure to raise these disputes within the statutory period.
Conclusions: The Tribunal concluded that the Respondent's claims did not constitute a valid pre-existing dispute under the Code.

Issue 3: Initiation of CIRP

Relevant Legal Framework and Precedents: Section 9 of the Insolvency and Bankruptcy Code, 2016, governs the initiation of CIRP by an Operational Creditor.
Court's Interpretation and Reasoning: The Tribunal found that the Respondent defaulted on its payment obligations, and no valid dispute was raised within the statutory period.
Key Evidence and Findings: The outstanding dues towards the cost of DSTBs were not disputed within the statutory period, and the Respondent's failure to pay constituted a default.
Application of Law to Facts: The Tribunal applied Section 9 of the Code, determining that the conditions for initiating CIRP were satisfied.
Treatment of Competing Arguments: The Respondent's arguments regarding alleged overpayments and disputes were found insufficient to prevent the initiation of CIRP.
Conclusions: The Tribunal concluded that the CIRP should be initiated against the Respondent.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The Hon'ble Supreme Court in Innoventive Industries Ltd. v. ICICI Bank noticed the definition of 'claim' and observed that even if the right of payment is disputed, the Code gets triggered the moment default is of rupees one lakh or more."
Core Principles Established: A right to payment exists even if disputed; failure to notify a dispute within the statutory period results in the initiation of CIRP.
Final Determinations on Each Issue: The Tribunal determined that the Respondent failed to raise a valid pre-existing dispute, and the CIRP was warranted due to default on payment obligations.

The judgment concludes with the initiation of the Corporate Insolvency Resolution Process against the Respondent, appointing an Interim Resolution Professional, and declaring a moratorium as per the provisions of the Insolvency and Bankruptcy Code, 2016.

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