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2022 (8) TMI 1004 - AT - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - debt in the Appeal is in nature of operational debt within the ambit of Section 5(21) of IBC or not - existence of any pre-existing dispute or not. Whether the debt in the Appeal is in nature of operational debt within the definition of Section 5(21) of IBC? - HELD THAT - The financial debt is an inclusive and non-exhaustive definition given under Section 5(8) of the IBC to mean a debt alongwith interest, if any, which is disbursed against the consideration for time value of money. Financial creditors have relationship with the entity as financial contract, like loan or security etc. Whereas, an operational debt as defined under section 5(21) of IBC signifies a claim in respect of the provisions of goods or services. The argument of Learned Counsel for the Appellant that insurance company has rejected the claims of Respondents treating this as Financial Arrangements and not procurement of goods and services - It is also noted from Learned Counsel for the Respondent that the said order of insurance company has already been challenged in the State Consumer Forum as such this has not reached the stage of finality. In any case, the outcome of insurance will not impact IBC Proceedings and at the best can only be one of the factors to be considered in final decision as claimed by Appellant. The Adjudicating Authority has correctly treated debt due as operational debt and therefore allowed to petition under Section 9 of IBC. Existence of any pre-existing dispute or not - HELD THAT - As per section 9(5)(ii)(d) of the IBC, application under Section 8 must be rejected with notice of dispute has been received by the Operational Creditor, however, the existence of dispute and/or a suit of arbitration proceeding must be pre-existing i.e. before receipt of demand notice. It is therefore, important to understand as to whether there were pre-existing dispute prior to issue of demand notice or otherwise. The demand notice was issued on 24.06.2019 in Form 3. Whereas, the arbitration petition was filed by OC on 03.11.2020. CD also initiated arbitration proceeding on 07.12.2020. Thus, it is clear that both the arbitration petition filed by OC (R-1) and CD (Appellant) were later then the demand notice issued. From the series of events, it is clear that the arbitration petition as well as settlement memo were subsequent to issue of demand notice. In terms of legal provision of the IBC, pre-existing dispute can be considered only if it is pre dated then the date of demand notice which is not the case here. As such the Learned Adjudicating Authority was right, there are no pre-existing dispute and therefore, Section 9 application was maintainable. Appeal dismissed.
Issues Involved:
1. Whether the debt in the appeal is in the nature of operational debt within the ambit of Section 5(21) of IBC. 2. Existence of any pre-existing dispute. Analysis of the Judgment: Issue No. (i): Whether the debt in the appeal is in the nature of operational debt within the definition of Section 5(21) of IBC. To determine if the debt in question qualifies as an operational debt, the tribunal examined the definitions provided in the Insolvency and Bankruptcy Code (IBC). The term "debt" is defined under Section 3(11) of IBC as "a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt."¯ The term "claim" is defined under Section 3(6) of IBC, which includes a right to payment or a right to remedy for breach of contract. The tribunal also reviewed the definitions of "operational debt" and "operational creditor" under Sections 5(21) and 5(20) of IBC, respectively. An operational debt is defined as "a claim in respect of the provision of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority."¯ The tribunal noted that the relationship between the Operational Creditor (OC) and the Corporate Debtor (CD) was based on a "Sourcing and Distribution Agreement" (SDA) dated 17.10.2018, which involved procurement and supply of marine products. Various documents such as bills of supply and goods receipt notes were examined, which indicated that the transactions were related to the supply of goods and services rather than financial arrangements. The tribunal observed that despite the Appellant's argument that the insurance company had rejected the claims treating them as financial arrangements, this decision was under appeal and had not reached finality. The tribunal concluded that the debt in question was correctly treated as operational debt by the Adjudicating Authority and thus allowed the petition under Section 9 of IBC. Issue No. (ii): Existence of any pre-existing dispute. The tribunal referred to the definition of "dispute" under Section 5(6) of IBC, which includes a suit or arbitration proceedings relating to the existence of the amount of debt, the quality of goods or service, or the breach of a representation or warranty. The tribunal also cited the Supreme Court's decision in Mobilox Innovation Pvt. Ltd. vs. Kirusa Software Pvt. Ltd., which states that the dispute must exist prior to the issuance of the demand notice. The Appellant argued that there were pre-existing disputes, citing the invocation of arbitration by the OC and the CD, and the subsequent common arbitration award. However, the tribunal noted that the demand notice was issued on 24.06.2019, while the arbitration petitions were filed later on 03.11.2020 and 07.12.2020, respectively. Additionally, the Memorandum of Compromise Settlement dated 30.06.2021 acknowledged the pendency of Section 34 petitions, which were also subsequent to the demand notice. The tribunal concluded that the arbitration petitions and settlement memo were events that occurred after the issuance of the demand notice. Therefore, no pre-existing dispute existed prior to the demand notice, making the Section 9 application maintainable. Conclusion: Based on the detailed analysis, the tribunal found no grounds for interference with the Impugned Order dated 06.06.2020 passed by the Adjudicating Authority. The appeal was dismissed with no costs.
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