2020 (9) TMI 699 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - pre-existing dispute or not - Operational Debt due and payable by the Corporate Debtor - Whether the invocation of the arbitration clause between the withdrawal of the first petition vide order dated 13.03.2018 and the issue of the second demand notice dated 23.08.2018 to the Corporate Debtor should be treated as pre-existing dispute within the meaning of section 5(6) of the IBC? - HELD THAT - The invocation of the arbitration clause by the Corporate Debtor between 13.03.2018 (when the first Company Petition bearing CP (IB) No.1823/2017 was dismissed as withdrawn with liberty), and 23.08.2018 (when the second demand notice came to be issued by the Operational Creditor to the Corporate Debtor), is of no consequence and cannot be treated as pre-existing dispute within the meaning of section 5(6) of the IBC. If the answer to the above is No then whether there is a debt due and payable by the Corporate Debtor in favour of the Operational Creditor? - HELD THAT - There was ample time and opportunity on the part of the Corporate Debtor to cancel the work order in case the work was deemed to be substandard. This was not done. Even after demobilisation by the Operational Creditor from the work site, this aspect of abandonment has never ever been raised by the Corporate Debtor with the Operational Creditor. Further, it is also observed from the records that the site was duly handed over by the Operational Creditor to the Corporate Debtor on 19.11.2015 with due notice. Therefore, it is difficult for us to hold that there was any deemed abandonment of the project by the Operational Creditor. Whether there is a default of the Operational Debt due and payable by the Corporate Debtor in favour of the Operational Creditor? - HELD THAT - The device of attempting to invoke the arbitration clause in the Work Order on the very day that the petition came to be dismissed with liberty by the Adjudicating Authority, can only be seen as a last-ditch effort to stave off the proceedings under section 9 of the IBC by claiming that the second petition cannot be admitted because it is blighted by the pre-existing dispute. The application made by the Operational Creditor is complete in all respects as required by law. It clearly shows that the Corporate Debtor is in default of a debt due and payable, and the default is in excess of minimum amount of one lakh rupees stipulated under section 4(1) of the IBC. Therefore, the default stands established and there is no reason to deny the admission of the Petition. In view of this, this Adjudicating Authority admits this Petition and orders initiation of CIRP against the Corporate Debtor - Application admitted - moratorium declared.

Summary

Issues Involved:
1. Invocation of the arbitration clause and whether it constitutes a "pre-existing dispute" under section 5(6) of the IBC.
2. Existence of a debt due and payable by the Corporate Debtor to the Operational Creditor.
3. Default of the Operational Debt due and payable by the Corporate Debtor.

Detailed Analysis:

Issue 1: Invocation of the Arbitration Clause and "Pre-existing Dispute"
The Operational Creditor argued that no dispute was raised before the first demand notice on 02.12.2017, with the first sign of dispute appearing in the Corporate Debtor's reply on 13.12.2017. The Corporate Debtor invoked the arbitration clause after the first petition was withdrawn on 13.03.2018 and before the second demand notice on 23.08.2018. The Tribunal referenced the NCLAT judgment in *Dinesh Gupta vs Hajura Singh Bhim Singh*, which held that disputes must be raised before the first demand notice to qualify as "pre-existing." Thus, the invocation of the arbitration clause did not constitute a "pre-existing dispute" under section 5(6) of the IBC.

Issue 2: Existence of Debt Due and Payable
The Corporate Debtor contended that claims for additional work were invalid as per Clause 20.02 of the Work Order, arguing no deviations in drawings or mutual agreements on costs. The Tribunal found that the Corporate Debtor's own documents and actions, including repeated changes in drawings and certifications by their architect, contradicted their claims. The Corporate Debtor's argument of incurred losses due to delays was unsupported by evidence. The Tribunal noted the lack of legal actions by the Corporate Debtor to pursue arbitration or other remedies, indicating the dispute was raised to avoid IBC proceedings.

Issue 3: Default of the Operational Debt
The Tribunal examined the differing responses from the Corporate Debtor to the first and second demand notices. The Corporate Debtor's counter-claims and arguments of additional costs were inconsistent and unsupported by records. The Tribunal found that the Corporate Debtor's actions, including invoking the arbitration clause on the day the first petition was withdrawn, were attempts to avoid IBC proceedings. The Tribunal concluded that the Corporate Debtor defaulted on the debt due and payable to the Operational Creditor.

Conclusion:
The Tribunal admitted the petition filed by the Operational Creditor under section 9 of the IBC, initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. A moratorium was declared under section 14 of the IBC, and Mr. Jitendra Kumar Yadav was appointed as the Interim Resolution Professional (IRP). The Tribunal ordered the Operational Creditor to deposit ?3,00,000 with the IRP for expenses related to public notice and claims. The Registry was directed to communicate the order to relevant parties and update the Corporate Debtor's Master Data with the Registrar of Companies, Maharashtra, Mumbai.