2022 (9) TMI 221 - AT - Insolvency and Bankruptcy

Initiation of CIRP - NCLT admitted the application - pre-existence of debt and dispute or not - Service of demand notice - Whether there was a debt due of which default was committed by the Corporate Debtor entitling the Operational Creditor to file an Application under Section 9 of the IBC? - HELD THAT - The contact was entered directly between OC CD and it was responsibility of CD to make payment to OC. At this stage, CD cannot take shelter of MoU entered into between CD Akshaya, which in any case, was an independent MoU or agreement. Admittedly, OC was not a direct party to said MoU. Merely fact that CD in turn had supplied 66,000 STBs to Akshaya as an agent, does not absolve him of his liability to make the payments as per contract in form of purchase order. The receipt of quantity i.e 66,000 STBs, quality or agreed upon rates were never any point of dispute between OC and CD. The debt existed which were due to be paid and default took place. We also observe that proper demand notice in Form 3 was issued fulfilling the requirement as stipulated in IBC - there are no error in the Impugned Order on this issue. Whether there was a pre-existing dispute between the parties prior to issuance of Demand Notice under Section 8 of the IBC dated 23.08.2021? - HELD THAT - There are two distinct contracts entered by CD i.e. one with OC, whereby, CD was to receive 66,000 STBs from OC and Second Contract with Akshaya to whom such STBs were to be supplied admittedly at 3% commission. Since, both are separate commercial transactions, the rights and liabilities are distinct of both contract and cannot be intermingled. We observed that at one hand CD has initiated Section 9 Application against Akshaya and later based on compromise memo was filed before the AA and claimed outstanding dues from Akshaya. Admittedly he has received certain consideration for supply of STBs to Akshaya but has raised. There was clear contract between CD and OC as well as CD and Akshaya and it is squarely responsibility of CD towards its obligation to OC. Correspondence between CD and OC as produced by both CD and OC do not establish any pre-existing dispute. Hence, AA rightly taken decision in this regard and there are no error in the impugned order for this issue. This Tribunal is of the considered view that no ground is made out for any interference by this Tribunal with the impugned order - Petition dismissed.

Summary

Issues Involved:
1. Whether there was a debt due of which default was committed by the Corporate Debtor entitling the Operational Creditor to file an Application under Section 9 of the IBC?
2. Whether there was a pre-existing dispute between the parties prior to issuance of Demand Notice under Section 8 of the IBC dated 23.08.2021?

Issue-wise Detailed Analysis:

Issue No. (i): Whether there was a debt due of which default was committed by the Corporate Debtor (CD) entitling the Operational Creditor (OC) to file an Application under Section 9 of the IBC?

To determine whether a debt existed and if a default occurred, the definitions of "debt" and "default" under the IBC were examined. A debt is defined under Section 3(11) as a liability or obligation in respect of a claim, which includes financial and operational debts. A claim, as per Section 3(6), includes a right to payment or remedy for breach of contract. Operational debt and operational creditor are defined under Sections 5(21) and 5(20) respectively, indicating a claim for goods or services provided.

The CD had placed a purchase order on 01.10.2018 for 66,000 STBs valued at USD 6,38,157, agreeing to pay 15% in advance and the remaining 85% within 180 days of delivery. The STBs were delivered in three shipments, and the CD filed the necessary bill of entries with customs, establishing receipt and liability for payment. The CD argued it was merely an agent for Akshaya, earning a 3% commission, and thus not responsible for payment. However, the contract was directly between the OC and CD, making the CD liable for payment regardless of its arrangement with Akshaya.

The Tribunal agreed with the Adjudicating Authority (AA) that a debt existed, was due, and defaulted upon by the CD. The issuance of a proper demand notice in Form 3 fulfilled the requirements stipulated in the IBC. Therefore, the Tribunal found no error in the Impugned Order on this issue.

Issue No. (ii): Whether there was a pre-existing dispute between the parties prior to issuance of Demand Notice under Section 8 of the IBC dated 23.08.2021?

The CD claimed a pre-existing dispute, referencing the Mobilox Innovations Pvt. Ltd. v Kirusa Software Pvt. Ltd. case, which states that if a pre-existing dispute exists, the AA must dismiss the application under Section 9 of the IBC. The CD presented evidence of correspondence advising the OC to hold shipments and pursue payments from Akshaya, alleging these communications established a pre-existing dispute.

The OC denied any pre-existing dispute, emphasizing the clear contract for the supply of 66,000 STBs and the CD's acknowledgment of receipt through customs documentation. The OC argued that disputes between the CD and Akshaya were separate and did not affect the CD's obligation to the OC.

The Tribunal noted that the CD had initiated Section 9 proceedings against Akshaya, later dismissed due to a compromise memo. The Tribunal found that the correspondence between the CD and OC did not establish a pre-existing dispute. The clause in the compromise memo between the CD and Akshaya further clarified the CD's responsibility to settle claims with the OC.

The Tribunal concluded that there was no pre-existing dispute and upheld the AA's decision. The Tribunal dismissed the appeal, finding no grounds for interference with the Impugned Order dated 22.07.2022. The connected pending Interlocutory Applications were also closed.