2022 (7) TMI 1281 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - Pre-Existing Dispute between the parties prior to the issuance of the Demand Notice under Section 8 of the Code, or not - HELD THAT - A perusal of the Ledger Account for the period 01.04.2016 to 31.03.2017 shows that the Debit Notes were issued by the Respondent Company to the Appellant Company contemporaneously. This Bench has perused the Debit Notes dated 23.01.2017, 31.12.2015 and 26.11.2015, wherein it is clearly specified that the debit note is being raised on account of bad and rejected material dispatched by the Appellant Company. The Hon ble Supreme Court in MOBILOX INNOVATIONS PRIVATE LIMITED VERSUS KIRUSA SOFTWARE PRIVATE LIMITED 2017 (9) TMI 1270 - SUPREME COURT , has observed A dispute does truly exist in fact between the parties, which may or may not ultimately succeed, and the Appellate Tribunal was wholly incorrect in characterizing the defense as vague, got-up and motivated to evade liability. Merely because there were settlement talks between the parties it cannot be construed that the debt is due and payable as envisaged under the Code, specifically keeping in view the ratio of the Hon ble Supreme Court in Mobilox Innovations Private Limited - In their Reply to the Section 8 Notice, the Respondent Company has clearly raised a dispute and the material on record evidences that the Debit Notes were raised on account of rejection of poor quality material and therefore we are of the considered view that there is a 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. This Tribunal is satisfied that the dispute truly exists in fact and is not spurious, hypothetical or illusory - there are no substantial grounds to interfere with the well-reasoned Order of the Adjudicating Authority. Appeal dismissed.

Summary

Issues:
1. Rejection of application under Section 9 of the Insolvency and Bankruptcy Code, 2016 by the Adjudicating Authority.
2. Existence of a pre-existing dispute between the parties prior to the issuance of the Demand Notice under Section 8 of the Code.

Analysis:
1. The judgment pertains to an appeal against the rejection of an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 by the Adjudicating Authority. The Appellant, a company engaged in manufacturing and selling refractories items, supplied goods to the Respondent and raised invoices. The Respondent disputed the quality of goods supplied after a Demand Notice was issued, claiming poor quality. The Appellant argued that the Respondent raised the dispute after the stipulated period and presented fabricated Debit Notes, indicating discrepancies. The Appellant also cited legal precedents to support their case, emphasizing the need for a pre-existing dispute before rejecting an application under Section 9.

2. The main issue addressed in the judgment was the existence of a pre-existing dispute between the parties before the issuance of the Demand Notice under Section 8 of the Code. The Respondent contended that Debit Notes were issued for defective goods, which the Appellant did not dispute. The Bench examined the Ledger Accounts and Debit Notes, noting that the Respondent raised the Debit Notes contemporaneously with the invoices. Referring to legal precedents, the judgment emphasized the need for a plausible contention requiring further investigation to reject an application under Section 9. Settlement talks between the parties did not establish the debt as 'due and payable,' as per the Supreme Court's ruling. The Tribunal concluded that a genuine dispute existed, warranting further investigation, and upheld the Adjudicating Authority's well-reasoned Order.

In conclusion, the Appellate Tribunal dismissed the appeal, finding no substantial grounds to interfere with the Adjudicating Authority's decision. The judgment underscored the importance of a genuine pre-existing dispute and the need for thorough investigation before rejecting an application under the Insolvency and Bankruptcy Code, 2016.