2020 (8) TMI 390 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Operational Debt - Petition was dismissed by Ld. Adjudicating Authority holding that the Applicant due to its inconsistent conduct has been unable to establish that the amount being claimed by it was owed by the Respondent and that the Respondent has defaulted in the payment - HELD THAT - It is found out that only ₹ 22,56,833/- was due to be paid to the Appellant and he has also handed over the cheque but Appellant has refused to accept the said cheque. i) Admittedly, the Operational Debt is exceeding ₹ 1 lakh. ii) The Appellant sent notice under Section 8 of the IBC to the Respondent and the Respondent have accepted and was not disputed the amount. iii) The Appellant have also produced documentary evidence in the support of operational debt before the Ld. Adjudicating Authority and this Appellate Tribunal. iv) In view of the aforesaid, admitted fact, the Ld. Adjudicating Authority committed error of record and not considered the judgment of the Hon ble Supreme Court in Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited, 2017 (9) TMI 1270 - SUPREME COURT wherein Hon ble Supreme Court laid down the law regarding powers of Adjudicating Authority passing the order of under Section 9 of the IBC. v). The Ld. Adjudicating Authority failed to appreciate the documents placed on record along with Application under Section 9 of the IBC . vi). From the record as we find that the Respondent has defaulted to pay more than ₹ 1 lakh and in absence of any pre-existing dispute and the record being complete, the Application under Section 9 preferred by the Appellant was fit to be admitted. Case remitted to the Ld. Adjudicating Authority for admitting the application under Section 9 of the IBC after Notice to both the parties and further to enable the Corporate Debtor to settle the matter prior to the admission - appeal allowed by way of remand.

Summary

Issues Involved:
1. Whether the Appellant established the existence of an operational debt owed by the Respondent.
2. Whether there was a pre-existing dispute regarding the claimed debt.
3. Whether the Adjudicating Authority erred in dismissing the application under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016.

Issue-wise Detailed Analysis:

1. Existence of Operational Debt:
The Appellant, a company engaged in the wholesale trading of paper, claimed that the Respondent owed it a substantial amount for goods supplied on credit. The Appellant maintained a running account and applied payments using the FIFO rule. It was asserted that as of 31.03.2018, the outstanding amount was ?2,39,80,892. The Respondent, however, disputed portions of this amount, alleging manipulations by the Appellant. The Appellant presented various emails and statements, including an email dated 08.10.2016, where the Respondent confirmed the closing balance for the period ending 30.09.2016. Despite the Respondent's objections, the Appellant provided evidence of the operational debt through consistent account statements and communications.

2. Pre-existing Dispute:
The Respondent argued that the Appellant manipulated bills and account statements, citing a letter dated 13.09.2018 where the Appellant requested confirmation on 166 bills. The Respondent claimed these bills were raised without their knowledge. The Respondent also highlighted that the Appellant did not submit account statements for earlier financial years (2013-2017), which could indicate a pre-existing dispute. However, the Appellant countered by presenting emails where the Respondent had confirmed account balances and did not dispute the operational debt prior to the statutory demand notice.

3. Adjudicating Authority's Decision:
The Adjudicating Authority dismissed the application under Section 9 of the IBC, stating that the Appellant's inconsistent conduct failed to establish the claimed amount and default by the Respondent. The Authority noted discrepancies in the amounts claimed and admitted by both parties. Despite attempts to reconcile accounts, no resolution was achieved. The Appellant appealed, arguing that the Authority overlooked key evidence, including the Respondent's email confirmations and the absence of any pre-existing dispute.

Findings and Order:
The Appellate Tribunal found that the Adjudicating Authority erred in its judgment. It noted that the operational debt exceeded ?1 lakh, and the Respondent had not disputed this amount prior to the statutory notice. The Tribunal referenced the Supreme Court's rulings in Macquarie Bank Limited Vs. Shilpi Cable Technologies Limited and Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited, emphasizing that the existence of an operational debt and the absence of a pre-existing dispute were sufficient grounds for admitting the application under Section 9 of the IBC. The Tribunal concluded that the Respondent defaulted on payments exceeding ?1 lakh and that the application should have been admitted.

Order:
The Tribunal set aside the impugned order dated 23.08.2019 and remitted the case to the Adjudicating Authority to admit the application under Section 9 of the IBC. The Tribunal directed the parties to appear before the Authority on 15th September 2020 and allowed the Respondent an opportunity to settle the matter before admission. The appeal was allowed with no costs, and the Registry was instructed to communicate the judgment to the Adjudicating Authority and upload it on the Tribunal's website.