2022 (8) TMI 419 - 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 - The Operational Creditor has clearly admitted that it had not complied above conditions even after it was intimated by the Corporate Debtor as deficiency of service. There is an unsettled pre-existing dispute between the Corporate Debtor and Operational Creditor and this case is covered by the celebrated decision of the Hon'ble Apex Court in Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited 2017 (9) TMI 1270 - SUPREME COURT wherein it was held that So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application. Application dismissed.

Summary

Issues:
Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 for Corporate Insolvency Resolution Process (CIRP) against a private limited company. Dispute over outstanding payment and alleged default by the Corporate Debtor.

Analysis:
The Application was filed by an Operational Creditor against the Corporate Debtor seeking to initiate the CIRP, declare moratorium, and appoint an Interim Resolution Professional. The Operational Creditor claimed a sum of Rs. 8,18,692/- as due and payable by the Corporate Debtor, including interest. The Operational Creditor provided electric material and services to the Corporate Debtor, alleging default in honoring invoices from 05.02.2018 to 11.09.2018. The Corporate Debtor, on the other hand, argued a pre-existing dispute, claiming the Operational Creditor failed to perform agreed electrical work and listed pending works in an email dated 02.04.2018.

The Corporate Debtor contended that payment was pending due to incomplete work as per the purchase order terms, where 80% of the total payment was made, and the remaining 20% was to be paid after testing and commissioning. The Corporate Debtor also raised issues regarding CEA approval and CENVAT credit, alleging non-compliance by the Operational Creditor. The Operational Creditor, in response, denied the existence of a pre-existing dispute and stated that deficiencies pointed out were rectified.

Upon reviewing the documents and submissions, it was found that there was an unsettled pre-existing dispute between the parties. Citing a landmark decision, the Tribunal highlighted the need for a plausible contention requiring further investigation to reject the application under Section 9(5)(2)(d) if a notice of dispute exists. The Tribunal concluded that the dispute was not spurious and dismissed the application, finding no merits in the case.

In summary, the Tribunal dismissed the Application for CIRP against the Corporate Debtor due to the presence of an unsettled pre-existing dispute between the parties, in line with legal precedents. The judgment emphasized the importance of genuine disputes over patently feeble arguments and highlighted the need for further investigation before initiating insolvency proceedings.