2023 (2) TMI 326 - AT - Insolvency and Bankruptcy

Initiation of CIRP - NCLT dismissed the application on the ground that petitioner failed to prove the debt and the liability to pay the same by the corporate debtor - Whether if Section 8 Notice is not replied to does any provision under the Code prevent the Corporate Debtor from pleading issues of Pre-Existing Dispute or that the debt has been paid in their Reply to the Petition filed under Section 9 of the Code and whether the Adjudicating Authority was justified in dismissing the Section 9 Application filed by the Appellant herein? HELD THAT - Neither Section 8 nor Section 9 of the Code indicate that in event Reply to Notice was not filed within 10 days the Corporate Debtor is precluded from raising the question of dispute or pleading that there or no amount due and payable the Corporate Debtor is not prevented from establishing by way of a Reply and relevant documents any Pre-Existing Dispute or paid Operational Debt. There are force in the contention of the Learned Counsel for the Appellant that though a Rejoinder has not been filed it cannot be construed that the pleadings in the Reply have been admitted to by the Appellant. The failure to file Rejoinder cannot be treated as Admission of the pleadings in the Written Statement. It is an admitted fact that there was an Agreement entered into for Season-2 dated 29.12.2016 whereby the total consideration was agreed at Rs.1.20Crs/-. A perusal of the record evidences that there are Claims and Counter Claims regarding the amount which was agreed upon. The email dated 22.11.2015 seen by the Appellant themselves shows the agreed value of the contract for the first Season as Rs.1.75Crs./- whereas it is the contention of the Learned Counsel for the Respondent that the amount is not Rs.1.75Crs./- but is Rs.2, 23, 29, 790/-. It is also the case of the Respondent that because of the deficient services rendered in Season-3 the cheque which was wrongly issued for Rs.34, 46, 000/- was later instructed to the Bank to stop payment - Admittedly no action has been initiated under Section 138 of the Negotiable Instrument Act 1881. As there was no Agreement entered into for Season-3 there is no documentary evidence on record to establish that any amount was due and payable by the Respondent herein. There is no communication on record to establish that the Appellant was entitled by some provisions/promise that this particular amount was liable to be paid. The ratio of MOBILOX INNOVATIONS PRIVATE LIMITED VERSUS KIRUSA SOFTWARE PRIVATE LIMITED 2017 (9) TMI 1270 - SUPREME COURT is applicable to the facts of this case as it is clear from the material on record that there are Claims and Counter Claims with respect to the amounts to be paid and the defense is not spurious or mere bluster - To reiterate an Agreement has been entered into only for Season-2 and in the absence of any such Agreement for the other seasons the Appellant/Operational Creditor has failed to discharge its burden that there was indeed an Operational Debt which was due and payable. Appeal dismissed.

Summary

Issues Involved:
1. Whether the petitioner proved the debt and the liability of the respondent-corporate debtor to pay the same.
2. Whether the non-reply to the Section 8 Notice precludes the corporate debtor from raising issues of pre-existing dispute or payment of debt in their reply to the Section 9 petition.
3. Whether the Adjudicating Authority was justified in dismissing the Section 9 Application filed by the appellant.

Issue-wise Detailed Analysis:

1. Debt and Liability Proof:
The primary issue was whether the petitioner proved the debt and the liability of the respondent-corporate debtor to pay the claimed amount. The petitioner, an operational creditor, provided Live TV Production services for three seasons of the Pro Wrestling League (PWL). The respondent-corporate debtor contended that they had paid Rs. 21.25 crores for Season 2 and Rs. 1 crore for Season 3 in full and final settlement. The petitioner did not file a rejoinder to dispute these specific averments. The Adjudicating Authority held that due to the absence of a specific denial by the petitioner and the failure to prove the debt and liability, the issue was decided against the petitioner.

2. Non-Reply to Section 8 Notice:
The appellant argued that the corporate debtor did not reply to the Demand Notice under Section 8 of the Insolvency and Bankruptcy Code, 2016, within the stipulated 10 days, thus precluding them from raising any dispute or claim of payment in their reply to the Section 9 petition. However, it was observed that neither Section 8 nor Section 9 of the Code precludes the corporate debtor from raising the question of dispute or pleading that the debt has been paid, even if no reply was given within 10 days. The Tribunal relied on the judgment in "M/s. Brandy Realty Services Ltd. Vs. M/s. Sir John Bakeries India Pvt. Ltd." which clarified that the statutory scheme does not indicate that failure to reply within 10 days precludes the corporate debtor from raising disputes.

3. Justification of Dismissal by Adjudicating Authority:
The Tribunal considered whether the Adjudicating Authority was justified in dismissing the Section 9 Application. The Tribunal noted that the petitioner did not file a rejoinder to the respondent's reply, which cannot be construed as an admission of the respondent's claims. The Tribunal examined the merits, noting that there was an agreement for Season 2, but no agreements for Seasons 1 and 3. The respondent's defense included claims of deficient services and a stop payment on a cheque due to these deficiencies. The Tribunal referred to the Supreme Court's judgment in "Mobilox Innovations Private Limited Vs. Kirusa Software Pvt. Ltd." which emphasized that the existence of a dispute must be a plausible contention requiring further investigation, not a patently feeble legal argument or an assertion of fact unsupported by evidence. The Tribunal concluded that there were claims and counterclaims regarding the amounts to be paid, and the defense was not spurious or mere bluster. The appellant failed to discharge the burden of proving that there was an operational debt due and payable.

Conclusion:
The Tribunal dismissed the appeal, affirming the Adjudicating Authority's decision to dismiss the Section 9 Application. The Tribunal held that the operational creditor failed to prove the debt and liability, and the corporate debtor was not precluded from raising disputes or claims of payment despite not replying to the Section 8 Notice within 10 days. The Tribunal found that the appellant did not establish the existence of an operational debt that was due and payable.