2022 (2) TMI 253 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - pre-existing disputes between the parties or not - HELD THAT - The notice under Section 8 was issued on 02.01.2019 and immediately thereafter Legal Notice dated 07.01.2019 was issued by the Corporate Debtor giving details of shortcoming at different places and making serious allegations against the Appellant. There is pre-existing dispute between the parties. Serious allegations have been made against the Appellant by the Corporate Debtor and the Adjudicating Authority did not commit any error in rejecting the Application under Section 9. There is no merit in this Appeal - appeal dismissed.

Summary

Issues:
1. Appeal against rejection of application under Section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Existence of enforceable debt and liability to pay by the corporate debtor.
3. Pre-existing disputes between the parties.
4. Consideration of warning notice and legal notice in determining pre-existing dispute.
5. Allegations of breach of contract, malpractice, defective supply of machinery, and threats of contract revocation.
6. Validity of warning notice and legal notice in establishing pre-existing dispute.
7. Rejection of application under Section 9 based on pre-existing dispute.

Analysis:

1. The appeal was filed against the rejection of an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 by the Adjudicating Authority. The application sought outstanding payment of ?134.72 Lakhs, including interest, from the corporate debtor.

2. The crucial issue revolved around whether the petitioner had proved the existence of an enforceable debt and the liability of the corporate debtor to pay the same. The corporate debtor claimed pre-existing disputes between the parties, citing warning and legal notices as evidence.

3. The Adjudicating Authority considered the submissions from both parties and rejected the application based on the existence of a pre-existing dispute. The corporate debtor had raised serious allegations of breach of contract, malpractice, and defective supply of machinery, threatening contract revocation.

4. The warning notice dated 06.12.2018 highlighted deficiencies in service and serious allegations against the appellant, indicating a pre-existing dispute. The subsequent legal notice further detailed shortcomings and serious allegations, reinforcing the presence of a dispute before the application under Section 9.

5. The Adjudicating Authority emphasized that the pre-existing dispute between the parties was evident from the warning and legal notices issued by the corporate debtor. The failure to settle these disputes before or after the demand notice led to the conclusion that a dispute existed, justifying the rejection of the application under Section 9.

6. The rejection of the appeal was based on the established pre-existing disputes between the parties, as evidenced by the warning and legal notices. The serious allegations made by the corporate debtor against the appellant supported the decision of the Adjudicating Authority to dismiss the application under Section 9.

7. In conclusion, the appeal was dismissed as there was no merit in challenging the rejection of the application under Section 9 due to the presence of pre-existing disputes between the parties, as substantiated by the warning and legal notices issued by the corporate debtor.