2022 (12) TMI 16 - AT - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Appellant is a related party in terms of Section 5(24)(j) of I B Code - existence of pre-existing dispute or not - HELD THAT - The judgment relied upon by the Respondent in the Zoom Communications Pvt. Ltd. 2022 (5) TMI 1480 - NATIONAL COMPANY LAW TRIBUNAL, NEW DELHI is not at all applicable because it deals with the sham transaction between the parties which was not allowed for the initiation of CIRP whereas no findings have been recorded in the present case. Pre-existing dispute - HELD THAT - The Adjudicating Authority has further erred in not looking to the fact that in the reply to the pre-trial notice, the Respondent did not raise any issue regarding the goods being substandard which issue came to be raised only when the demand notice was issued before filing the application and was an afterthought objection, not made out from the record. The emails relied upon the Adjudicating Authority are not directed to raise a pre-existing dispute rather the said emails are exchanged by the parties regarding the improvement in the operation and sales and has nothing to do with the goods which are now alleged to be substandard or defective. Argument of the Respondent that the Appellant has invoked the arbitration in the pre-trial notice is also neither here nor there in view of the fact that firstly, Section 21 of the Act would apply only to the Arbitral proceedings in India as has been held by the Delhi High Court in the case of Raffles Design International India Pvt. Ltd. 2016 (10) TMI 1353 - DELHI HIGH COURT and secondly, it was the arbitration court in the St. Petersburg which is akin to Civil/Commercial Court having three tiers. Thus, there is an error of appreciation of facts and evidence on the part of the Adjudicating Authority in dismissing the application filed by the Appellant - appeal allowed.

Summary

Issues:
1. Related party status under Section 5(24)(j) of the Insolvency and Bankruptcy Code, 2016.
2. Existence of a pre-existing dispute between the parties.

Related Party Status Issue:
The appeal challenged the Adjudicating Authority's decision dismissing the application under Section 9 of the Code based on the Appellant's related party status. The Respondent argued the Appellant was a related party as per Section 5(24)(j) and cited a judgment in a different case. However, the Tribunal found the cited judgment inapplicable as it dealt with a sham transaction, unlike the present case. The Appellant argued that being a related party would not bar them from filing the application under Section 9. Reference was made to a decision by the Tribunal in another case to support this argument. The Tribunal concluded that related party status does not prevent filing under Section 9 and allowed the appeal, setting aside the Adjudicating Authority's decision.

Pre-Existing Dispute Issue:
Regarding the pre-existing dispute, the Appellant contended that the Respondent's objection about substandard goods was an afterthought raised after the demand notice. The Adjudicating Authority considered various emails but erred in concluding a pre-existing dispute. The emails discussed operational improvements, not product quality issues. The Respondent mentioned an arbitration clause, but the Tribunal clarified that the clause's applicability is limited to Indian arbitration proceedings. The Appellant's notice was in line with Russian laws, involving a commercial court, not an arbitral tribunal. The Tribunal found errors in the Adjudicating Authority's assessment of facts and evidence, leading to the appeal's allowance and setting aside of the impugned order. The Adjudicating Authority was directed to admit the application as per the law, without costs.