2021 (9) TMI 173 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - Service of demand notice - HELD THAT - The present claim of ₹ 22,14,86,000/- of the Applicant has arose out of the two High Seas Sales Agreement, the dispute relating to which was referred by the Applicant to the Sole Arbitrator. Admittedly, the Corporate Debtor has raised dispute over the claim of the applicant within 10 days, as prescribed under Section 8 of the Code, vide its reply to the Demand Notice dated 28.01.2021. The Corporate Debtor in reply to the demand notice, has referred to the Arbitration Proceedings and claimed pre-existing dispute - further the applicant itself had initiated the Arbitration Proceeding to resolve the dispute relating to its claim, which resulted in dismissal of the claim being pre-mature. The documents on record sufficiently indicate that there has been a pre-existing dispute between the parties prior to issuance of demand notice. Hence, there being a pre-existing dispute and a situation in which the Applicant/Operational Creditor itself has referred the dispute to the Arbitration proceeding, which resulted in dismissal of the claim of the Applicant being pre-mature, the operational Creditor has failed to prove that its operational debt is undisputed. In terms of Section 9(5)(ii)(d) of the IBC, the moment it is established that there is a pre-existing dispute, the Corporate Debtor gets out of the clutches of the I B Code. Petition dismissed.

Summary

Issues:
- Petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 for Corporate Insolvency Resolution Process initiation.
- Dispute over outstanding dues and quality of goods supplied.
- Arbitration proceedings and Arbitral Award dismissal of claim.
- Response to Section 8 Demand Notice and pre-existing dispute claim.

Detailed Analysis:
The judgment pertains to a petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 by an Operational Creditor against a Corporate Debtor for initiating the Corporate Insolvency Resolution Process. The Operational Creditor alleged non-payment of dues amounting to ?22,14,86,000 by the Corporate Debtor arising from two High Seas Sale Agreements for the supply of edible oils. The Operational Creditor contended that despite supplying goods as per agreed terms, the Corporate Debtor failed to make full payment, leading to the outstanding amount. Additionally, the Operational Creditor had initiated Arbitration Proceedings against the Corporate Debtor, resulting in an Arbitral Award dismissing the claim as premature due to quality issues with the supplied goods.

The Corporate Debtor, in response to the Section 8 Demand Notice, disputed the debt due and referenced the Operational Creditor's admission of quality complaints regarding the goods supplied. The Corporate Debtor highlighted the Arbitral Award's findings and raised a dispute against the Operational Creditor's claim. During the proceedings, the Corporate Debtor argued the existence of a pre-existing dispute before the service of the demand notice, rendering the application non-maintainable under the Code.

Upon considering the arguments and documents presented, the Tribunal observed that the Operational Creditor's claim had already been subject to Arbitration proceedings initiated by the Operational Creditor, resulting in the dismissal of the claim as premature. The Tribunal referred to legal precedents emphasizing the importance of a genuine dispute and the inappropriateness of using the IBC as a substitute for recovery forums. The Tribunal concluded that a pre-existing dispute existed between the parties, and the Operational Creditor failed to establish the undisputed nature of the operational debt. Consequently, the petition was dismissed, absolving the Corporate Debtor from the provisions of the Insolvency and Bankruptcy Code.