2020 (2) TMI 760 - Tri - IBC

Maintainability of application - initiation of CIRP - Corporate debtor failed to make repayment of its debt - debt due and payable or not - HELD THAT - There is no privity of contract between the applicant and the Corporate Debtor. The Corporate Debtor has given this project to M/s. RITES Ltd. Hence, there is no liability directly from the Corporate Debtor to the Operational Creditor. Hence, on this ground the application ought to be dismissed - However, in the rejoinder filed by the Operational Creditor, they have not answered the question as to how the Corporate Debtor is liable to pay money to the Operational Creditor, when the contract was between the Corporate Debtor and M/s. RITES Ltd. Further, the Operational Creditor are only sub-contractor under the said M/s. RITES Ltd. Reliance placed in the case of Mobilox Innovations (P.) Ltd. v. Kirusa Software (P.) Ltd. 2017 (9) TMI 1270 - SUPREME COURT where it was held that So long as a dispute truly exists in fact or is not spurious, hypothetical or illusory, the Adjudicating Authority has to reject the application. Application dismissed.

Summary

Issues:
1. Jurisdiction of the Adjudicating Authority
2. Dispute regarding payment between Operational Creditor and Corporate Debtor
3. Legal aspects of the contractual obligations and privity of contract
4. Statutory deductions and retention amount dispute
5. Application of Section 9 of the Insolvency and Bankruptcy Code, 2016

Jurisdiction of the Adjudicating Authority:
The Tribunal noted that the applicant, an Operational Creditor, filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 for the initiation of the Corporate Insolvency Resolution Process of the Corporate Debtor, a company registered under the Companies Act, 1956. The Tribunal confirmed its jurisdiction to entertain the petition as the Registered Office of the Corporate Debtor was located within its jurisdiction.

Dispute regarding payment between Operational Creditor and Corporate Debtor:
The Operational Creditor claimed a significant amount due and payable by the Corporate Debtor, citing contractual obligations. However, the Corporate Debtor contended that there was no privity of contract between them, as the work was subcontracted to the Operational Creditor by another entity. The Corporate Debtor submitted detailed payment breakup showing that the amount claimed had been settled subject to statutory deductions, but the Operational Creditor disputed not receiving the full payment.

Legal aspects of the contractual obligations and privity of contract:
The Corporate Debtor argued that all dues were cleared, subject to statutory deductions and retention amounts, emphasizing that any remaining disputes should be addressed in a Civil Court. The Tribunal highlighted the importance of establishing the existence of a genuine dispute before admitting an insolvency application, referencing the case law of Mobilox Innovations (P.) Ltd. v. Kirusa Software (P.) Ltd. The Tribunal emphasized the need to differentiate between a valid dispute requiring further investigation and a baseless defense.

Statutory deductions and retention amount dispute:
The Corporate Debtor asserted that the Operational Creditor's claim had been settled after deductions and retention amounts. However, the Operational Creditor contended that a significant amount was still due, leading to a disagreement over the final payment status. The Corporate Debtor maintained that the retention amount was justified and not payable to the Operational Creditor.

Application of Section 9 of the Insolvency and Bankruptcy Code, 2016:
After considering the arguments and examining the records, the Tribunal dismissed the application under Section 9 of the Insolvency and Bankruptcy Code, 2016, based on the existence of a genuine dispute between the parties regarding the payment claims. The Tribunal directed the Registry to communicate the order to the petitioner and respondent, with the issuance of a certified copy upon compliance with formalities.