2022 (6) TMI 501 - 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 - HELD THAT - It is very much clear from the email dated 16.01.2018 and other emails exchanged between the parties that there existed a preexisting dispute between the parties. The Corporate Debtor had also claimed an amount form the Operational Creditor for bad quality of goods and also with regard to rate difference of the goods. It is also pertinent to note that the email dated 16.01.2018 of the Corporate Debtor is well before the issuance of the Demand Notice. The Corporate Debtor has also claimed certain amount from the Operational Creditor towards damages as mentioned in the email dated 16.01.2018. The defense of the Corporate Debtor is not spurious to escape the liability from payment but also requires investigation. As per the settled law laid down by the Hon ble Apex Court in Mobilox Innovations Private Limited V/s Kirusa Software Private Limited, 2017 (9) TMI 1270 - SUPREME COURT the Adjudicating Authority is to see at this stage whether there is plausible contention which requires further investigation and that the dispute is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is thus important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so the Court does not need to be satisfied that the defence is likely to succeed - So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the Adjudicating Authority has to reject the Application. There is no merit in the Company Petition and the same deserves to be dismissed.

Summary

Issues Involved:
1. Default in payment by the Corporate Debtor.
2. Existence of operational debt.
3. Pre-existing dispute between the parties.
4. Admissibility of the petition under Section 9 of the Insolvency and Bankruptcy Code, 2016.

Issue-wise Detailed Analysis:

1. Default in Payment by the Corporate Debtor:
The Operational Creditor filed a petition to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, alleging a default in payment amounting to Rs. 1,17,65,049/- plus interest at 24% p.a. The Operational Creditor had sold and delivered printing inks to the Corporate Debtor, with the outstanding sales amounting to Rs. 1,07,87,937/-. The overdue interest was Rs. 9,67,723/-, and the pending Sales Tax Forms "C" liability was Rs. 9,389/-. Each invoice had standard terms, including payment within 30 days and interest at 24% p.a. for defaults. The Operational Creditor sent a Demand Notice on 08.02.2018, which was received by the Corporate Debtor on 19.02.2018. The Corporate Debtor responded after the stipulated ten days, denying liability and alleging a claim of Rs. 1.30 crores due to rate differences and quality issues.

2. Existence of Operational Debt:
The Operational Creditor's claim was based on invoices raised on the Corporate Debtor, with amounts due on various dates. The invoices detailed the particulars of debt, including invoice numbers, dates, amounts, and due dates. The Operational Creditor argued that there was an operational debt exceeding Rs. 1 lakh, which was due and payable by the Corporate Debtor. The Operational Creditor also cited the judgment in Mobilox Innovation Vs. Kirusa Software Private Limited, which outlines the criteria for determining operational debt, including the existence of debt, its due and payable status, and the absence of a pre-existing dispute.

3. Pre-existing Dispute Between the Parties:
The Corporate Debtor argued that a pre-existing dispute existed, citing issues of rate differences and quality problems that were acknowledged by the Operational Creditor's sales personnel. The Corporate Debtor's reply to the Demand Notice and subsequent communications highlighted these disputes. The Operational Creditor, however, contended that the dispute was raised for the first time in response to the Demand Notice and was unsubstantiated. The Tribunal noted that emails exchanged between the parties, including one dated 16.01.2018, indicated a pre-existing dispute regarding the quality and rate differences of goods supplied.

4. Admissibility of the Petition Under Section 9 of the Insolvency and Bankruptcy Code, 2016:
The Tribunal referred to the Supreme Court's judgment in Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited, which requires the adjudicating authority to determine if there is a plausible contention requiring further investigation and whether the dispute is not spurious, hypothetical, or illusory. The Tribunal found that the Corporate Debtor's defense was not spurious and required investigation. As a result, the Tribunal concluded that the petition could not be admitted due to the pre-existing dispute.

Conclusion:
The Tribunal dismissed the Company Petition No. (IB) – 1713 of 2018 on the ground of a "Pre-existing dispute" between the parties. The findings emphasized that the dispute was genuine and required further investigation, thereby making the petition inadmissible under the criteria established by the Supreme Court in the Mobilox case.