2021 (6) TMI 760 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - application was dismissed on the ground of pre-existing dispute - HELD THAT - The Demand Notice has to be responded to within 10 days, as required in Section 8(2) for the purpose of bringing to the notice of the operational creditor the existence of a dispute or evidence of repayment of operational debt. The Corporate Debtor has not done so, prompting the operational creditor to take action as per Section 9 (1). Later during hearing before the Adjudicating Authority, the Corporate Debtor raised the issue of existence of a dispute. It appears to be a spurious dispute, raised to ward off the responsibility of repayment of debt as claimed by the operational debtor - The doubtful nature of dispute can also be inferred from the fact that Ld. Counsel of Respondent (Corporate Debtor) has stated in arguments that he had sent emails regarding the high percentage of wastage of newsprint on 28.9.2016, 5.10.2016, 25.5.2017, 2.7.2018 and 9.8.2018. The first invoice that is included in the demand notice which is due for payment is of 22.2.2018. All the other invoices included in the demand notice are of dates later than 22.2.2018 - It is not clear why the same issue is raised again by the corporate debtor for later invoices. It appears that this issue has been shown as a pre-existing dispute as an afterthought by the Respondent. While there is dispute about the rate of interest claimed by the Appellant it does not significantly alter the quantum of unpaid debt, which will remain to be above Rs. One Lakh. Thus, the application is maintainable on account of the unpaid debt being more than Rs. One Lakh, the threshold amount. Appellant not printing the newspaper for 16 days and the loss incurred by the Respondent on this account - HELD THAT - The Clause 3 of the agreement stipulates that the responsibility of supplying newsprint lay with the Corporate Debtor. Hence this issue does not provide any help to the Respondent in his case. High percentage of wastage of newsprint in printing - HELD THAT - The said agreements make it very clear that the minimum number of chargeable copies will be 10,000. In addition, the said agreements also stipulate that the wastage will be less than 4%. This wastage, quite obviously, is in relation to printing of 10,000 copies. It is understood that in printing jobs as the number of copies increase the quantum of wastage decreases and, conversely, as the number of copies decrease the quantum of wastage increases - It is, therefore, logical to expect that the later invoices should also have been settled on the same principle. Hence, we find the insistence of the Respondent that the Appellant should provide clarification for higher wastage to be superfluous and according to us this dispute does not fall in the category of preexisting dispute. Submission of dispute to arbitration - HELD THAT - The matter was not referred for arbitration by either of the parties. This issue of possibility of arbitration has been raised at the appeal stage. It is not for this tribunal to direct the parties to go for arbitration. The Appellant and the Respondent continued in their relationship of Corporate Debtor and Operational Creditor even after 3.12.2017 and hence effectively the agreements continued to bind the parties. The Corporate Debtor accepted the invoices raised on and after 22.2.2018 and in various emails kept on promising to make payments and buying time for making payments - Appellant s application under Section 9 of IBC satisfies all the ingredients as laid down in law. The same deserved to be admitted. The matter is remitted back to the Adjudicating Authority. The Adjudicating Authority will admit the application (unless parties settle dispute before such Order), and pass further consequential directions as per provisions of IBC - Appeal allowed.

Summary

Issues Involved:
1. Whether the agreement that allegedly lapsed on 3.12.2017 was extended by conduct.
2. Whether the percentage of wastage of newsprint and the minimum number of chargeable copies are in consonance with the provisions in the agreement and if there is a pre-existing dispute regarding this.
3. Whether the Appellant can invoke provisions of IBC in view of Clause 24 of the agreements for arbitration under the Arbitration and Conciliation Act.

Issue-wise Detailed Analysis:

1. Extension of Agreement by Conduct:
The Appellant claimed that the agreement, initially valid until 3.12.2017, was extended by conduct as the Respondent continued to send emails requesting printing jobs, which the Appellant fulfilled. The Tribunal found that the continuous email communication and fulfillment of printing orders indicated mutual consent to extend the agreement beyond its original term. This conduct was tantamount to working according to the terms of the agreement even after its lapse. The Appellant provided 66 email communications as evidence of continued operations and payments until January 2018, supporting the claim that the agreements were effectively extended by conduct.

2. Percentage of Wastage and Pre-existing Dispute:
The Respondent argued that the Appellant did not adhere to the agreed wastage percentage of less than 4% and failed to provide satisfactory explanations for high wastage. The Tribunal noted that the agreements stipulated a minimum print order of 10,000 copies, and the wastage percentage was related to this quantity. Since the print orders were often less than 10,000 copies, the higher wastage was justified. The Tribunal found the Respondent's dispute regarding wastage to be an afterthought, raised to avoid payment. The issue of wastage was deemed not to constitute a pre-existing dispute, as payments were made for earlier invoices despite similar concerns.

3. Invocation of IBC Provisions vs. Arbitration Clause:
The Respondent contended that disputes should be resolved through arbitration as per Clause 24 of the agreements. However, the Tribunal observed that neither party had referred the matter to arbitration. The Tribunal clarified that it was not within its purview to direct the parties to arbitration at the appeal stage. The Tribunal emphasized that the provisions of the IBC could be invoked since the matter was not submitted for arbitration by either party.

Conclusion:
The Tribunal concluded that the parties continued their operational relationship beyond 3.12.2017, effectively extending the agreements. The Appellant's invoices were accepted, and the Respondent's promises to make payments indicated acknowledgment of debt. The issue of newsprint wastage was not a valid pre-existing dispute, and the application under Section 9 of the IBC was maintainable as the unpaid debt exceeded the threshold amount. The Tribunal set aside the Adjudicating Authority's order, remitted the matter back for admission of the application, and directed further consequential actions as per the IBC provisions.

Order:
The appeal succeeded, the impugned order dated 16.12.2019 was set aside, and the matter was remitted back to the Adjudicating Authority to admit the application and pass further directions. No order as to costs.