2021 (5) TMI 875 - AT - Insolvency and Bankruptcy

Validity of application admitted for initiation of CIRP - pre-existing dispute or not - contravention of Rule 152, Rule 150 and Rule 89 of the NCLT Rules 2016. Whether there is any pre-existing dispute? - HELD THAT - Upon a bare reading of e-mail dated 03.11.2016, it is clear that the Corporate Debtor stated that the supplied coal is not as per specification and due to that nozzle bent and boiler has become damaged which would lead to heavy production losses. Hence, it was requested that delivery of the coal be stopped. It is also mentioned that if more losses occurred due to poor/inferior quality of coal they may debit the same amount in the account of Operational Creditor - Corporate Debtor has neither issued any debit note nor has returned the supplied coal but consumed the same. It means that after receiving the e-mail dated 04.11.2016 the Corporate Debtor was satisfied and kept quiet for about 15 months. It is only when they received a statutory notice that they filed a Civil Suit against the Operational Creditor. It cannot be held that there was any dispute in regard to the transaction in question. It seems that in order to avoid the liability, the Corporate Debtor through its reply to notice, tried to impress that there was a pre-existing dispute. The Civil Suit has been filed after receipt of statutory notice, therefore, such Civil Suit cannot be treated as existence of dispute - the Corporate Debtor has failed to prove any pre-existing dispute in regard to transaction in question. Whether the impugned order is passed in contravention of Rule 152, Rule 150 and Rule 89 of the NCLT Rules 2016? - HELD THAT - It is an admitted fact that the NCLT Bench, Ahmedabad consisted of Shri H. P. Chaturvedi Member (Judicial) and Shri Prashanta Kr. Mohanty Member (Technical) who heard the application and reserved for orders on 20.11.2019. Thereafter, the parties have filed their written submission on 06.01.2020 and the impugned order was pronounced by the same Bench on 28.05.2020. Meanwhile, vide order dated 12.05.2020 and 30.04.2020 these members have been transferred. However, due to lockdown they were unable to join their new place of posting. Since the members were physically present at Ahmedabad. Therefore, in public interest vide order dated 21.05.2020, a special Bench was constituted to pronounce the orders reserved by the erstwhile Bench as per Section 419 (3) of the Companies Act, 2013 for the period of 22.05.2020 to 29.05.2020. Thus, it cannot be said that the members have pronounced the impugned order in contravention of Rule 152 of the NCLT Rules, 2016. The Appellant has failed to establish that there was a pre-existing dispute and in pronouncing the impugned order, the Adjudicating Authority committed any illegality - there are no merits in the appeal - appeal dismissed.

Summary

Issues Involved:
1. Whether there is any pre-existing dispute?
2. Whether the impugned order is passed in contravention of Rule 152, Rule 150, and Rule 89 of the NCLT Rules 2016?

Issue No. (i): Whether there is any pre-existing dispute?

The Appellant argued that there was a pre-existing dispute as defined in Section 5(6) read with Section 8(2)(a) of the IBC. The documents relied upon included emails dated 30.10.2016, 03.11.2016, and 04.11.2016, an analysis report of raw material by Central Testing Laboratory, a reply to the statutory notice, and a civil suit for damages filed against the Operational Creditor.

The email dated 30.10.2016 was sent by Shri Tradco Deesan Pvt. Ltd. (STDPL), a sister concern of the Corporate Debtor, to the Group Concern of the Operational Creditor and was related to a different purchase order dated 11.10.2016. This email was not referenced in the reply to the statutory notice and did not relate to the purchase order dated 27.10.2016. Therefore, it was not considered relevant to the transaction in question.

The email dated 03.11.2016 from the Corporate Debtor to the Operational Creditor mentioned that the supplied coal was not as per specifications, leading to potential production losses. The Operational Creditor responded on 04.11.2016, stopping the delivery of coal. The Corporate Debtor neither issued any debit note nor returned the supplied coal but consumed it, indicating satisfaction with the response. The civil suit for damages was filed only after receiving the statutory notice, which does not constitute a pre-existing dispute under Section 8(2) of IBC.

The analysis reports of raw material by Central Testing Laboratory were not sent to the Operational Creditor and were prepared unilaterally by the Corporate Debtor, hence not considered valid evidence of a pre-existing dispute.

Therefore, the Corporate Debtor failed to prove any pre-existing dispute regarding the transaction.

Issue No. (ii): Whether the impugned order is passed in contravention of Rule 152, Rule 150, and Rule 89 of the NCLT Rules 2016?

The NCLT Bench, Ahmedabad, consisting of Shri H. P. Chaturvedi and Shri Prashanta Kr. Mohanty, reserved the order on 20.11.2019, and the impugned order was pronounced on 28.05.2020. The members were transferred but could not join their new postings due to the COVID-19 pandemic. A special Bench was constituted to pronounce the reserved orders, which was in public interest and as per Section 419(3) of the Companies Act, 2013. Therefore, the pronouncement of the impugned order was not in contravention of Rule 152 of the NCLT Rules, 2016.

Rule 150 of the NCLT Rules, 2016, mandates that orders be pronounced within 30 days of the final hearing. The Hon’ble Supreme Court in Anil Rai Vs. State of Bihar (2001) 7 SCC 318 laid down guidelines for pronouncement within two months in civil matters. The impugned order was pronounced after about five months, which is against the rule and guidelines. However, this delay alone does not justify setting aside an otherwise flawless order.

Rule 89 of the NCLT Rules, 2016, requires the registry to publish the cause list for the next working day in advance. The cause list for pronouncement of the impugned order was published on the same day, 28.05.2020, which may be an irregularity but not an illegality. The Appellant did not claim they could not access the order on 28.05.2020.

In conclusion, the Appellant failed to establish a pre-existing dispute, and no illegality was committed by the Adjudicating Authority in pronouncing the impugned order. The appeal was dismissed with no order as to costs.