2022 (9) TMI 746 - 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 - Upon perusal of the records, specifically the letter dated 29th September 2019 and its reply dated 2nd August 2019, it is clear that there were preexisting disputes in the instant matter. Further, annexure R-3 to the reply affidavit, being the master data of the Proxichem LLP i.e the company which manufactures Miteshot reveals that the representatives of the Operational Creditor, being Mr. Kailash Dhaundival and Mr. Ishan Dhaundival are the directors of Proxichem LLP. Even though the letter containing such disputes was issued after the demand for the debt was made by the Operational Creditor vide email dated 3rd July 2019, it appears that the Corporate Debtor s contentions regarding the relation between the Operational Creditor and Proxichem LLP is not baseless and need to be looked into further. However, the same can only be adjudicated in an evidentiary proceeding and not by a summary proceeding under the Code. The pre-existing disputes in the instant case are not mere feeble arguments and need to be adjudicated upon by a court of competent jurisdiction. As such, in presence of pre-existing disputes, the instant petition is not maintainable. This Adjudicating Authority is satisfied that the instant petition is liable to be rejected.

Issues Involved:
1. Existence of pre-existing disputes.
2. Validity of the Demand Notice under Section 8 of the Insolvency and Bankruptcy Code, 2016.
3. Fiduciary relationship and misrepresentation by the Operational Creditor.
4. Admissibility of evidence and authority to affirm the affidavit.

Issue-wise Detailed Analysis:

1. Existence of Pre-existing Disputes:

The Corporate Debtor contended that there were pre-existing disputes regarding the quality and effectiveness of the 'Miteshot' pesticide supplied by the Operational Creditor, which allegedly caused damage to the tea crops. The Corporate Debtor had raised these disputes in a letter dated 29th July 2019, prior to the Demand Notice issued on 22nd November 2019. The Tribunal found that the disputes were not mere feeble arguments but required further investigation. The Tribunal referred to the Supreme Court judgment in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited, which held that if a plausible contention of a dispute exists, the operational creditor's application must be rejected.

2. Validity of the Demand Notice under Section 8 of the Insolvency and Bankruptcy Code, 2016:

The Operational Creditor issued a Demand Notice under Section 8 of the Code on 22nd November 2019, claiming dues of Rs. 46,39,622/- along with interest. The Corporate Debtor replied on 11th December 2019, raising issues about the 'Miteshot' pesticide. The Tribunal noted that the disputes were raised before the Demand Notice, indicating the presence of pre-existing disputes. Hence, the Demand Notice did not meet the requirements under Section 8 of the Code.

3. Fiduciary Relationship and Misrepresentation by the Operational Creditor:

The Corporate Debtor argued that the Operational Creditor had a fiduciary relationship with it, advising on the use of pesticides and misrepresenting the effectiveness of 'Miteshot.' The Operational Creditor denied these claims, stating that it merely supplied the chemicals requisitioned by the Corporate Debtor. The Tribunal found that the relationship between the parties and the role of the Operational Creditor in advising the Corporate Debtor needed further adjudication in an evidentiary proceeding, not a summary proceeding under the Code.

4. Admissibility of Evidence and Authority to Affirm the Affidavit:

The Operational Creditor questioned the authority of the deponent of the reply affidavit from the Corporate Debtor, stating that no document of authority was annexed or relied upon. The Tribunal did not find this contention sufficient to dismiss the Corporate Debtor's claims, as the primary issue was the existence of pre-existing disputes.

Conclusion:

The Tribunal concluded that the pre-existing disputes between the parties were substantial and required adjudication by a competent court. Therefore, the petition to initiate Corporate Insolvency Resolution Process (CIRP) was not maintainable and was rejected. The Operational Creditor was advised to pursue other legal remedies if desired.

Order:

The petition C.P.(IB) No. 138/KB/2020 was rejected. The registry was directed to send email copies of the order to all parties and their counsel. Certified copies of the order could be issued upon compliance with requisite formalities.

Signed on this, the 12th day of September, 2022.

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