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2020 (5) TMI 426 - AT - Insolvency and BankruptcySubstitution of the director of the Corporate Debtor - impleadment of interim resolution professional - CIRP Process - pre-existing dispute regarding the deficiency of goods and services - HELD THAT - Prior to filing the application under section 9 of the Insolvency and Bankruptcy Code, 2016 before the Adjudicating Authority NCLT filed by the Respondent No. l/Operational Creditor has approached the Construction Equipment Rental Forum (CERA), of which only Respondent No. 1/Operational Creditor is a member vide email dated 9-1-2018 at Page 136 of the Paper Book through its official Mr. Mithlesh Kumar for resolving the existing dispute and wherein, it is claimed that the CERA which is only an association arbitrarily vide its e-mail dated 28-2-2018 at Page 264 directed the Appellant to unilateral release/pay an undisclosed, unjustified and arbitrary amount. As there was pre-existing dispute between the Parties and the Application under section 9 of Insolvency and Bankruptcy Code, 2016 filed on behalf of the Operational Creditor (Respondent No. 1) should not have been admitted and the Learned Adjudicating Authority not having considered the entire facts and the law in its correct perspective before passing the Impugned Order dated 8-11-2019 committed error - the Corporate Debtor/Appellant is released from the rigor of Corporate Insolvency Resolution Process and actions taken by IRP/RP and Committee of Creditors, if any, in view of the Impugned Order are set aside. IRP/RP will hand back the records and management of the Corporate Debtor to the promoters/directors of the Corporate Debtor. The matter is remitted back to the Adjudicating Authority to decide the fee and costs of 'Corporate Insolvency Resolution Process' payable to IRP/RP which shall be borne by the Respondent/Operational Creditor - Appeal allowed by way of remand.
Issues Involved:
1. Pre-existing Dispute: Whether there was a pre-existing dispute regarding the deficiency of goods and services provided by the Operational Creditor. 2. Maintainability of Application under Section 9 of IBC: Whether the application for initiating Corporate Insolvency Resolution Process (CIRP) was maintainable given the alleged pre-existing disputes. 3. Adjudication by NCLT: Whether the National Company Law Tribunal (NCLT) correctly adjudicated the matter considering the facts and law. Detailed Analysis: Pre-existing Dispute: The Appellant argued that there was a pre-existing dispute regarding the quality and efficiency of the services provided by the Operational Creditor. The Corporate Debtor had placed a work order for a boom pump, which was found to be deficient and defective from the inception. The Appellant raised multiple complaints about the frequent breakdowns and unprofessional approach of the Operational Creditor through various correspondences, including emails and messages dated 31-10-2017, 25-12-2017, 26-12-2017, and 7-1-2018. The Appellant also claimed that the Operational Creditor maliciously stopped the machine to pressurize the Corporate Debtor, resulting in losses. The Operational Creditor, however, denied these allegations and maintained that the service was provided as agreed, with only 8.5 days consumed for maintenance out of 92 days of service. Maintainability of Application under Section 9 of IBC: The Appellant objected to the maintainability of the application under Section 9 of the IBC, arguing that the invoices forming the basis of the Operational Debt were different from those in the demand notice under Section 8 of the IBC. The Appellant contended that the disputes were raised during the subsistence of the work order and were communicated to the Operational Creditor through various modes. The Operational Creditor, on the other hand, argued that the disputes were hypothetical and illusory, and that the Appellant had admitted to an outstanding amount of ?6,35,000 through a WhatsApp message dated 30-11-2018. The Operational Creditor also stated that the amount was settled at ?1,56,076, but the Appellant failed to honor this commitment. Adjudication by NCLT: The NCLT admitted the application under Section 9 of the IBC and initiated the CIRP against the Corporate Debtor. However, upon appeal, it was found that the NCLT did not consider the pre-existing disputes adequately. The exchange of emails between the parties clearly established that there was a pre-existing dispute regarding the services rendered. The Supreme Court's judgment in "Mobilox Innovations Private Limited v. KIRUSA Software Pvt. Ltd." was cited, which emphasizes that the existence of a dispute must be pre-existing before the receipt of the demand notice or invoice. Conclusion: The National Company Law Appellate Tribunal (NCLAT) concluded that there was indeed a pre-existing dispute between the parties regarding the deficiency of services. The NCLT failed to consider these disputes in its correct perspective before passing the impugned order. Consequently, the NCLAT set aside the NCLT's order dated 8-11-2019, released the Corporate Debtor from the CIRP, and remitted the matter back to the NCLT to decide the fee and costs of the CIRP, which shall be borne by the Operational Creditor. The appeal was allowed, and no costs were imposed.
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