2020 (8) TMI 497 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - petition dismissed on the ground that there were pre-existing disputes between the parties - HELD THAT - Adjudication authority failed to consider that the respondent has sought to confuse matters by relating to prior correspondence, in fact that it was the liability of the respondent and that the respondent under an arrangement with the said M/s Hindalco Industries Limited had intended to clear the dues to the Appellant. The said arrangement was seemed to be made to run away from the obligation to pay the debt by the respondent as Hindalco could not hold respondent s payment contractually and also Hindalco can pay directly to the Appellant subject to confirmation from the Respondent, however there is no such confirmation from the respondent - Adjudicating authority failed to consider that respondent has sought to shift the liability from itself to Hindalco Industries Limited to make payment to the appellant with a view to deny the appellant of its legitimate dues. The defence raised by the respondent is not genuine and an after-thought merely to evade making payments of the liabilities under the purchase orders to the appellant. Case remitted to the Adjudicating Authority, Mumbai Bench to admit the application and pass appropriate order in presence of the parties - appeal allowed.

Issues Involved:
1. Existence of operational debt and its non-payment.
2. Alleged pre-existing disputes between the parties.
3. Adjudicating Authority's reliance on email correspondence.
4. Novation of contract and liability of payment.

Issue-wise Detailed Analysis:

1. Existence of Operational Debt and Its Non-Payment:
The Appellant, a private limited company, engaged in manufacturing equipment for bulk material handling systems, supplied goods and services to the Corporate Debtor between 2010 and 2013. The Appellant raised various invoices amounting to ?5,97,11,875/- out of which ?1,15,50,712/- remained unpaid. Despite the Appellant's compliance with the stipulated delivery and quality standards, the Corporate Debtor failed to clear the dues. The Appellant issued multiple reminders and a statutory demand notice under Section 433 and 434 of the Companies Act, 2013, which was not complied with, leading to the filing of an application under Section 9 of the Insolvency and Bankruptcy Code, 2016.

2. Alleged Pre-existing Disputes Between the Parties:
The Respondent argued that there were pre-existing disputes regarding the quality of the goods supplied, particularly the conveyor belts, which were allegedly damaged due to improper erection and operation by the Respondent. The Respondent cited email correspondence and meetings where these issues were discussed. However, the Appellant contended that the disputes were not genuine and were raised as an afterthought to evade payment.

3. Adjudicating Authority's Reliance on Email Correspondence:
The National Company Law Tribunal (NCLT) dismissed the Appellant's petition based on an email dated 03.09.2016, which indicated disputes regarding the quality of the conveyor belts. The Appellant argued that the NCLT erroneously relied on this single email without considering the overall acceptance of debt by the Respondent and the lack of substantial disputes.

4. Novation of Contract and Liability of Payment:
The Respondent claimed that a novation of contract occurred, wherein Hindalco Industries Limited agreed to pay the dues directly to the Appellant, thus discharging the Respondent's liability. The Appellant refuted this, stating that the arrangement with Hindalco was merely to facilitate payment and did not absolve the Respondent of its primary responsibility.

Judgment Analysis:
The National Company Law Appellate Tribunal (NCLAT) found that the NCLT erred in dismissing the application by solely relying on email correspondence without considering the merits and acceptance of debt by the Respondent. The NCLAT emphasized the need to determine the existence of a genuine dispute and operational debt as per the principles laid down in 'Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd.'

The NCLAT concluded that the Respondent's defense was not genuine and was an afterthought to evade payment. The Tribunal set aside the NCLT's order and remitted the case for admission of the application under Section 9 of the IBC. The NCLAT also allowed the Respondent the option to settle the claim before the application's admission, enabling the Appellant to withdraw the application if settled.

Conclusion:
The appeal was allowed, and the case was remitted to the Adjudicating Authority for admission of the application under Section 9 of the IBC, with no order as to costs.

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