2020 (10) TMI 918 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - discrepancy in the demand notice - stand of the Appellant is that the amount in default as specified in the Demand Notice is to be in consonance with the Application filed and the invoices sent - Appellant submits that the Adjudicating Authority had failed to consider the fact that the material defect in the Demand Notice is fatal to the facts of the present case - HELD THAT - In a given petition filed by the Operational Creditor there is a heavy burden on the Corporate Debtor to show that the dispute is a real and genuine one. Further, where a petition of the Operational Creditor was opposed by the Corporate Debtor on the ground that the dispute existed between the parties regarding the quality of the goods supplied but failed to raise the dispute within ten days of the receipt of Statutory Notice under Section 8 of the I B Code, it is held that the petition is maintainable - If a dispute truly exists in fact and is not a hypothetical or an illusory one, then, the Adjudicating Authority is to reject the Application. A defence being a mere bluster can also be rejected by an Adjudicating Authority . It cannot be lost sight off that an unpaid Demand Notice is evidence of Debtor s inability to pay its debts for the purpose of bankruptcy proceedings and it is a just ground for a creditor to justify the filing of the petition. An Adjudicating Authority is not to decide how much due is. Further, an Adjudicating Authority is required to examine before admitting or rejecting an application u/s 9 of the Code as to whether the dispute raised by the Corporate Debtor qualify as a dispute as defined under sub-section (6) of Section 5 and whether notice of dispute given by the Corporate Debtor satisfies the conditions prescribed in sub-section (2) of Section 8 of the Code. Further, the existence of an undisputed sum is a condition precedent for initiating Corporate Insolvency Resolution Process - In the present case, no reply was issued to the Demand Notice dated 06.04.2018 of the First Respondent / Operational Creditor by the Corporate Debtor and this is clearly an adverse circumstance against the Appellant, in the considered opinion of this Tribunal. In Law, an Adjudicating Authority is safely and surely to admit the Application, if the debt is proved and the default took place, the only rider being, that the Application must be complete as per the ingredients of the Court. Before the Adjudicating Authority the Application was filed on 06.04.2018. The outstanding amount was ₹ 9,42,841/- as on 22.09.2017 and hence, the Application filed was well within limitation. Suffice it for this Tribunal to point out that the impugned order passed by the Adjudicating Authority in admitting the application filed by the First Respondent / Operational Creditor does not suffer from any material irregularity or patent illegality in the eye of Law. Appeal dismissed.

Summary

Issues Involved:
1. Validity of the Demand Notice.
2. Discrepancy in the amount claimed.
3. Pre-existing dispute regarding the quality of goods.
4. Admissibility of WhatsApp communications as evidence.
5. Jurisdiction and procedure of the Adjudicating Authority.
6. Additional evidence and documents submitted at the appellate stage.
7. Cooperation of the Corporate Debtor with the Resolution Professional.

Issue-wise Detailed Analysis:

1. Validity of the Demand Notice:
The Appellant contended that the Demand Notice under Form 3 and 4 dated 06.04.2018 mentioned a total debt of INR 18,63,840, while the application before the Adjudicating Authority mentioned INR 27,17,818, leading to a discrepancy. The Tribunal noted that a mistake in a Demand Notice does not necessarily invalidate it unless it causes prejudice to the Corporate Debtor. The Tribunal found no prejudice caused and upheld the validity of the Demand Notice.

2. Discrepancy in the Amount Claimed:
The Appellant argued that the amount in default should be INR 88,863, not INR 9.42 Lakhs, as claimed. The Tribunal observed that the sum in default was consistently mentioned as INR 9,42,841 in both the Demand Notice and the application. The Tribunal concluded that the discrepancy did not affect the validity of the claim, as the Corporate Debtor had not raised any objections within the stipulated period.

3. Pre-existing Dispute Regarding the Quality of Goods:
The Corporate Debtor claimed that low-quality and defective material was supplied. The Tribunal noted that no specific and categorical denial or evidence was provided by the Corporate Debtor to substantiate this claim. The WhatsApp communications and emails presented did not indicate any pre-existing dispute about the quality of goods. The Tribunal held that the defense was a mere bluster and not a genuine dispute.

4. Admissibility of WhatsApp Communications as Evidence:
The Appellant argued that WhatsApp communications were taken as conclusive evidence without a certificate under Section 65B of the Indian Evidence Act. The Tribunal stated that the Adjudicating Authority only took a cursory look at the WhatsApp communication and did not solely rely on it. The Tribunal found no fault in the Adjudicating Authority's approach.

5. Jurisdiction and Procedure of the Adjudicating Authority:
The Appellant contended that the amendment allowed by the Adjudicating Authority was beyond its jurisdiction. The Tribunal clarified that the amendment was to cure defects in Form V and did not change the debt amount. The Tribunal upheld the Adjudicating Authority's decision, stating that no prejudice was caused to the Corporate Debtor.

6. Additional Evidence and Documents Submitted at the Appellate Stage:
The Appellant sought to submit additional documents to show a pre-existing dispute. The Tribunal allowed only certain judicial orders to be placed on record, while rejecting other documents as they did not bind the First Respondent and were not relevant to the issues at hand. The Tribunal emphasized that additional evidence is not permitted to remove lacunae in a litigant's record.

7. Cooperation of the Corporate Debtor with the Resolution Professional:
The Tribunal noted that the Corporate Debtor failed to cooperate with the Resolution Professional despite multiple communications. The Tribunal highlighted the importance of cooperation for the smooth functioning of the Insolvency Resolution Process and pointed out that the former management's non-cooperation could lead to prosecution under Section 425 of the Companies Act, 2013.

Conclusion:
The Tribunal dismissed the appeal, stating that the impugned order passed by the Adjudicating Authority did not suffer from any material irregularity or patent illegality. The Tribunal upheld the initiation of the Corporate Insolvency Resolution Process against the Corporate Debtor and directed the Appellant to furnish the certified copy of the impugned order within ten days.