2020 (7) TMI 234 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor Failed to make repayment of its debt - existence of debt and dispute or not - HELD THAT - From the facts and records, it is emphatically clear that there is serious dispute between the parties which are prior to issuance of Demand Notice. Neither the Adjudicating Authority nor this Appellate Tribunal sitting in a summary jurisdiction can go into those issues which otherwise required regular trial. It is mandatory that the Operational Creditor on the occurrence of a default, deliver a Demand Notice of unpaid operational debt, copies of invoices demanding payment of the amount involved in the default to the Corporate Debtor in such form and manner as may be prescribed. The Corporate Debtor shall, within a period of 10 days of the receipt of the Demand Notice or copy of the invoice mentioned in Section 8(1) of IBC bringing to the notice of the Operational Creditor regarding existence of a dispute (if any) record of pendency of the suit or the arbitration proceedings filed before the receipt of such notice or the invoice in relation to such dispute. In the present case, admittedly, there are disputes between the Appellant and the Respondent which is evident from the records - From the FIR lodged by the Appellant prior to sending of Section 8 Notice and the Respondent disputed the debt to be payable by the Respondent in their reply to the Demand Notice. The moment there is an existence of a prior dispute, the Corporate Debtor gets out of clutches of the rigors of the Court. Further the adequacy of dispute is only to be seen whether the dispute raised by the Corporate Debtor specifies as a dispute as defined under section 5(6) of IBC. In view of Section 9(5)(ii)(d) of the IBC on the ground that there is a record of dispute existence between the parties, which dispute is serious in nature - there is pre-existing dispute between the parties which cannot be adjudicated in a summary proceeding - Appeal dismissed.

Summary

Issues Involved:
1. Existence of pre-existing dispute between the Appellant and the Respondent.
2. Non-payment of operational debt by the Respondent.
3. Admissibility of the application under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016.

Detailed Analysis:

1. Existence of Pre-Existing Dispute:
The primary issue for consideration was whether there was a pre-existing dispute between the Appellant and the Respondent. The Adjudicating Authority (NCLT) and the Appellate Tribunal (NCLAT) both determined that a serious dispute existed between the parties. The Appellant had lodged an FIR against the Respondent's directors on 07-09-2016, alleging cheating and non-payment of the amount ?1,10,23,403.63. This FIR was lodged before the issuance of the Section 8 Notice on 31-03-2018. The Respondent, in their reply to the Demand Notice dated 13-04-2018, categorically stated that there was no debt payable and that they had paid an excess amount of ?5,56,889/- during the period from June 2014 to October 2016. The existence of this dispute was further supported by the Appellant's own admission in their rejoinder, where they denied and disputed the Respondent's claim of having paid an excess amount. The Tribunal emphasized that the IBC is a summary procedure and cannot adjudicate serious disputes requiring evidence, as held by the Supreme Court in "Mobilox Innovations Private Limited v. Kirusa Software Private Limited" (2018) 1 SCC 353.

2. Non-Payment of Operational Debt:
The Appellant, acting as an Operational Creditor, claimed that the Respondent defaulted in paying the operational debt of ?1,45,74,133/-, which included 12% interest per annum. The Appellant had issued two Demand Notices on 17-06-2016 and 13-07-2016, and later served a notice under Section 8 of IBC on 31-03-2018, demanding ?1,10,23,431.38 and ?35,50,701.95. However, the Respondent, in their reply dated 13-04-2018, denied the existence of any debt payable. The Respondent claimed to have paid ?86,30,000/- and an excess amount of ?5,56,889/- which was not adjusted by the Appellant. The Tribunal found that the Respondent's contention of having paid an excess amount further supported the existence of a dispute.

3. Admissibility of the Application under Section 9 of IBC:
The Tribunal referred to Section 9(5)(ii)(d) of IBC, which mandates the rejection of an application if a notice of dispute has been received by the Operational Creditor or if there is a record of dispute in the information utility. The Tribunal also referenced Section 8(2)(a) of IBC, which requires the Corporate Debtor to bring to the notice of the Operational Creditor the existence of a dispute within ten days of receiving the demand notice. Given the serious nature of the dispute and the prior FIR lodged by the Appellant, the Tribunal concluded that the application under Section 9 could not be admitted. The Tribunal reiterated that the existence of a dispute, as defined under Section 5(6) of IBC, was sufficient to reject the application.

Conclusion:
The Tribunal upheld the decision of the Adjudicating Authority, concluding that there was a pre-existing dispute between the parties, which could not be adjudicated in a summary proceeding. The appeal was dismissed, and no orders as to cost were made.