2022 (7) TMI 617 - AT - 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 prior to service of demand notice or not - HELD THAT - While the operational creditor claims to have submitted all the relevant documents regarding labour compliances, the corporate debtor has been repeatedly asking the operational creditor to submit the relevant documents - it is also noted that the operational creditor, in his e-mail dated 12.11.2016 states that the requirement of labour compliances as contained in (corporate debtor) previous communication as well as meetings are not relevant for the purposes of clearing outstanding dues payable to the operational creditor, but he is still willing to hand over an indemnity letter regarding no legal consequences/damages to be faced by the corporate debtor. No indemnity letter is also found to be handed over to the corporate debtor. It is noted from the reply sent by the corporate debtor to the section 9 application that the corporate debtor had been repeatedly pointing out the deficiency/insufficiency of documents relating to labour law compliances submitted by the operational creditor. At one point in his e-mail dated 12.11.2016, the operational creditor claims that the requirements of labour compliances are not relevant for the purpose of clearing the outstanding dues. The sections on Terms and Conditions and Other Terms and Conditions of the work order dated 17.8.2013 very clearly show that the work order relates to a labour contract and therefore the conditions regarding compliance of all labour laws and Central/State/Local authorities statutory requirements are necessary and have to be done. The Adjudicating Authority, who has relied on the facts and documents presented before it alongwith the section 9 application, has not erred in holding that a pre-existing dispute was present in the case, and has, therefore, correctly rejected the section 9 application - Appeal dismissed.

Summary

Issues Involved:
1. Existence of a pre-existing dispute.
2. Compliance with labour laws and statutory requirements.
3. Submission of additional documents at the appellate stage.

Detailed Analysis:

1. Existence of a Pre-existing Dispute:
The appeal was filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) against the order dismissing the application filed under Section 9 of the IBC on the grounds of a pre-existing dispute. The Operational Creditor had raised invoices for work completed, but the Corporate Debtor withheld payments citing non-compliance with labour laws and statutory requirements. The Appellant argued that the Corporate Debtor had made admissions regarding the existence of debt in various documents and replies, and that the withholding of payments was not justified as there was no clause in the work order allowing such action for non-compliance. However, the Corporate Debtor consistently communicated the need for compliance with labour laws, establishing the existence of a dispute prior to the demand notice under Section 8.

2. Compliance with Labour Laws and Statutory Requirements:
The work orders required the Operational Creditor to comply with all relevant labour laws and statutory requirements. The Corporate Debtor repeatedly requested necessary documents to verify compliance, which the Operational Creditor failed to provide adequately. The Operational Creditor claimed that compliance was not relevant for payment clearance but offered an indemnity letter, which was never submitted. The Tribunal noted that compliance with labour laws was a pre-condition for payment, and the Operational Creditor's failure to meet these requirements substantiated the Corporate Debtor's claim of a pre-existing dispute.

3. Submission of Additional Documents at the Appellate Stage:
The Appellant submitted additional documents at the appellate stage to support claims of compliance with statutory requirements. However, the Tribunal rejected these additional documents, citing the Supreme Court's judgment in Dena Bank vs. C. Shivakumar Reddy, which allows for the submission of additional documents in Section 7 applications but requires permission from the Adjudicating Authority. The Appellant did not seek such permission, and the documents were not part of the original Section 9 application. Therefore, the Tribunal deemed it inappropriate to accept these documents at the appellate stage.

Conclusion:
The Tribunal upheld the Adjudicating Authority's decision, affirming that a pre-existing dispute existed and that the Operational Creditor's non-compliance with labour laws justified the withholding of payments. The appeal was dismissed as devoid of merit, with no order as to costs.