2022 (12) TMI 612 - AT - Insolvency and Bankruptcy

Initiation of CIRP - Demand Notice on unpaid Operational Debt - existence of dispute - Outstanding dues towards 'Interest' - It is sbumitted that, there was no agreement between the parties to pay any interest, in any view of the matter. - NCLT admitted the application - HELD THAT - Section 9(5)(ii) contemplates that Adjudicating Authority shall reject the Application if notice of dispute has been received by the Operational Creditor or there is record of dispute in the Information Utility. The object and purpose of IBC is to reorganize and revive the Corporate Debtor. Section 9 Application is not contemplated to decide the dispute between the parties regarding the operational dues. The crux of the matter in the present case is to find out as to whether there was a plausible dispute supported by the materials raised by the Corporate Debtor in Reply to Demand Notice. The averments of the Corporate Debtor are that the accounts till 31st March, 2016 were settled hence interest charges upto April, 2016 of Rs. 8,170/- were asked for by email dated 03.06.2016 which also said that subsequent payment has to be made with 18% interest. Paragraph 9 further gives a details of happening where the Operational Creditor denied to collect the goods and settlement was entered there between the parties that Operational Creditor shall not raise any demand of payment. When we look into the contents of allegations made in the Reply Notice, it is clear that Reply notice raises substantial and genuine issues to oppose the claim of the Operational Creditor s amount due. - Present is a case where it cannot be said that defence taken by the Corporate Debtor in Reply Notice is a moonshine defence unsupported by any evidence. Corporate Debtor having raised genuine disputes by sending a Reply Notice to the Demand Notice, the Adjudicating Authority ought not to have admitted the Section 9 Application. Appeal allowed.

Issues Involved:
1. Admission of Section 9 Application under the Insolvency and Bankruptcy Code, 2016.
2. Existence of a dispute regarding the operational debt.
3. Settlement of accounts between the parties.
4. Payment of interest on the outstanding amount.
5. Role of the Adjudicating Authority in Section 9 proceedings.

Issue-wise Detailed Analysis:

1. Admission of Section 9 Application under the Insolvency and Bankruptcy Code, 2016:
The appeal challenges the Order dated 16.09.2022, where the National Company Law Tribunal, Jaipur Bench admitted the Section 9 Application filed by the Respondent under the Insolvency and Bankruptcy Code, 2016. The Corporate Debtor disputed the demand, claiming that accounts were settled till 31st March 2016, and the last invoice dated 2nd June 2016 was not paid due to quality issues with the supplied goods.

2. Existence of a dispute regarding the operational debt:
The Corporate Debtor raised a dispute regarding the quality of goods supplied, which was communicated through an email dated 3rd June 2016. The Corporate Debtor claimed that the goods were of poor quality and requested the Operational Creditor to take them back. The Adjudicating Authority must reject the Section 9 Application if a notice of dispute has been received by the Operational Creditor or there is a record of dispute in the Information Utility. The Hon'ble Supreme Court in "Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited" emphasized that the dispute must be pre-existing and not a patently feeble legal argument or unsupported by evidence.

3. Settlement of accounts between the parties:
The Corporate Debtor contended that all accounts were settled till 31st March 2016, and subsequent purchases were to be cleared on an invoice-to-invoice basis. The email dated 3rd June 2016 from the Operational Creditor demanded interest charges up to April 2016, supporting the claim that accounts were settled. The Adjudicating Authority did not consider the email dated 3rd June 2016, which indicated that the demand for interest was only for Rs. 8,170/- up to April 2016.

4. Payment of interest on the outstanding amount:
The Corporate Debtor argued that there was no agreement to pay any interest. The email dated 3rd June 2016 only requested interest charges up to April 2016, and there was no mention of any previous dues. The Adjudicating Authority did not adequately address this issue, and the Operational Creditor's demand for interest was not substantiated by any agreement.

5. Role of the Adjudicating Authority in Section 9 proceedings:
The Adjudicating Authority's role in Section 9 proceedings is to ascertain whether there is a plausible contention that requires further investigation and that the dispute is not spurious, hypothetical, or illusory. The Adjudicating Authority should not enter into final adjudication regarding the operational debt but should determine if the defence raises a genuine dispute. The Adjudicating Authority failed to apply the ratio of the Hon'ble Supreme Court's judgment in "Mobilox Innovations Pvt. Ltd." and did not consider the email dated 3rd June 2016, which supported the Corporate Debtor's claims.

Conclusion:
The Corporate Debtor raised genuine disputes supported by evidence, and the Adjudicating Authority should not have admitted the Section 9 Application. The appeal was allowed, the Order dated 16th September 2022 was set aside, and the Section 9 Application filed by the Operational Creditor was dismissed. The Operational Creditor may pursue its dues in an appropriate forum as permissible by law. The amount deposited by the Appellant under the Court's Orders was to be refunded.

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