2021 (1) TMI 932 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditor or not - pre-existing dispute or not - HELD THAT - After the reply of Corporate Debtor, Operational Creditor has filed its rejoinder, in its rejoinder the Operational Creditor states that, on 27-10-2018, the Operational Creditor issued a Demand Notice against the Corporate Debtor which the Corporate Debtor responded to vide its response letter dated 6-11-2018. The Corporate Debtor issued a show cause notice dated 29-10-2018 after almost 3 months of termination of the Consultancy Agreement of the Operational Creditor w.e.f 4-8-2018 and also replied to the Demand Notice on 6-11-2018 creating a false/moonshine dispute to avoid the payment of the operational debt due to the Operational Creditors. The Operational Creditor further states that, aforementioned handover is being portrayed by the Corporate Debtor as a moonshine dispute whereas this has no relation with the contract, the 6 months notice period and even the termination of the Operational Creditor's contract which was terminated for convenience and not misconduct - In M/S. INNOVENTIVE INDUSTRIES LTD. VERSUS ICICI BANK ANR. 2017 (9) TMI 58 - SUPREME COURT the Hon'ble Supreme Court held that pre-existing dispute is the dispute raised before demand notice or invoices was received by the 'Corporate Debtor'. Any subsequent dispute raised while replying to the demand notice under section 8(1) cannot be taken into consideration to hold that there is a pre-existing dispute. It is made clear that any observations made in this order shall not be construed as an expression of opinion on the merit of the controversy and the right of the applicant before any other forum shall not be prejudiced on account of dismissal of the instant application - application dismissed.

Summary

Issues Involved:
1. Validity of the termination of the Consultancy Agreement.
2. Entitlement to professional fees and notice period dues.
3. Pre-existing dispute between the parties.
4. Jurisdiction of the Tribunal.

Detailed Analysis:

1. Validity of the termination of the Consultancy Agreement:
The Operational Creditor was hired by the Corporate Debtor as an Independent Consultant under a Consultancy Agreement dated 1-4-2018. The agreement stipulated a consultancy fee of Euro 6600 per month. The Operational Creditor resigned on 4-7-2018, which was accepted by the Corporate Debtor on 4-8-2018. However, the Corporate Debtor terminated the agreement on 12-8-2018, citing gross misconduct related to the handling of an ex-employee's exit, which included the deletion of confidential data. The Corporate Debtor argued that this misconduct justified the immediate termination of the agreement without further payment obligations.

2. Entitlement to professional fees and notice period dues:
The Operational Creditor claimed that she was entitled to professional fees for the notice period as per clause 10.4 of the Consultancy Agreement, which required a 180-business-day notice before termination. She raised an invoice for ?33,46,992 for the notice period from August 2018 to January 2019. The Corporate Debtor, however, refused to pay, arguing that the termination was justified due to the alleged misconduct and thus waived the notice period without liability for further payments.

3. Pre-existing dispute between the parties:
The Corporate Debtor contended that there was a pre-existing dispute before the issuance of the demand notice on 27-10-2018. The Tribunal noted that various correspondences, including emails dated 8-8-2018, 12-8-2018, and 7-9-2018, indicated an ongoing dispute related to the alleged misconduct of the Operational Creditor. The Tribunal referred to the Supreme Court's judgment in "Innoventive Industries Ltd. v. ICICI Ltd." and "Mobilox Innovations (P.) Ltd. v. Kirusa Software (P.) Ltd.," which held that a pre-existing dispute raised before the demand notice cannot be ignored.

4. Jurisdiction of the Tribunal:
The Tribunal confirmed its jurisdiction to entertain and try the application as the registered office of the respondent is situated in New Delhi.

Conclusion:
The Tribunal found that there was a pre-existing dispute between the parties, which was evident from the correspondences exchanged before the demand notice was issued. As a result, the application to initiate the Corporate Insolvency Resolution Process (CIRP) under section 9 of the Insolvency and Bankruptcy Code, 2016, was rejected and dismissed. The Tribunal clarified that the observations made in the order should not prejudice the applicant's rights before any other forum.