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2023 (3) TMI 543 - AT - Insolvency and BankruptcyAdmitting of petition filed u/s 9 of IBC - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not. Whether payment to the Operational Creditor was due from the Corporate Debtor and if so, whether a default has been committed by the Corporate Debtor in respect of payment of such operational debt and whether there was any pre-existing dispute raised during the stage of Section 8 Notice? HELD THAT - It is the case of the Respondent that the Corporate Debtor continues to hold possession of the said premises even beyond the 5 year term of the LLA and that neither outstanding license nor service charges have been paid so far and that there was a default in the payment of operational debt of Rs.7,66,52,157/- only. It is found that the Adjudicating Authority has noted that since the Corporate Debtor has not produced details of any payment in respect of monthly rent etc., operational debt and default is established and on this ground admitted the Section 9 petition. This finding of the Adjudicating Authority is erroneous and one-sided having not taken cognizance of the fact that the operational debt claimed by the Operational Creditor was never admitted at any stage by the Corporate Debtor. The series of correspondences make it amply clear that both the parties were at loggerheads on the issue of both rental and service charges in respect of the said premises and that this dispute also pre-dated the issue of Section 8 demand notice on 11.08.2021. It has also not escaped our attention that in their reply to Section 9 application, the Corporate Debtor has categorically mentioned that there is total absence of any enforceable debt outstanding against the Corporate Debtor as placed at page 199 of APB. The reply notice thus clearly amounted to a notice of dispute having unequivocally opposed the claim of the Operational Creditor s amount due. If the debt is disputed, the application of the Operational Creditor for initiation of CIRP must be dismissed. It is an undisputed fact that Clause 13 of the LLA and Clause 17 of SA provide for resolution of disputes by mutual negotiation failing which by arbitration. It is also clear from the facts on record that a notice invoking arbitration under Clause 17 of SA was invoked by the Operational Creditor on 06.08.2020 as seen at page 157 of APB and this has not been controverted by the Respondent - A plain reading of the arbitration notice makes it abundantly clear that there were serious disputes between the two parties and the Operational Creditor by their own admission stated that failure to get the dispute resolved through mutual negotiation compelled them to resort to arbitration. We also notice that the Corporate Debtor vide email dated 31.08.2020 had rejected the invocation of the arbitration and informed the Operational Creditor about already having filed a criminal complaint against him for misrepresentation and fraud. The Adjudicating Authority therefore clearly fell in error in admitting the Section 9 application while turning a blind eye to this voluminous exchange of correspondence between the Corporate Debtor and Operational Creditor spread over a long period of time on the availability of compliances/certificates from various competent authorities, which clearly establishes that there were serious differences between them in the nature of real pre-existing disputes. In the present factual matrix, the defence raised by the Corporate Debtor therefore cannot be held to be moonshine, spurious, hypothetical or illusory. For such disputed operational debt, Section 9 proceeding under IBC cannot be initiated at the instance of the Operational Creditor. The Adjudicating Authority committed serious error in admitting Section 9 application in the facts of the present case. The Impugned Order dated 12.05.2022 initiating CIRP of the Corporate Debtor and all other orders pursuant to Impugned Order are therefore set aside - Application disposed off.
Issues Involved:
1. Whether payment to the Operational Creditor was due from the Corporate Debtor. 2. Whether a default has been committed by the Corporate Debtor in respect of payment of operational debt. 3. Whether there was any pre-existing dispute raised during the stage of Section 8 Notice. Summary: Issue 1: Payment Due from Corporate Debtor The Corporate Debtor, engaged in the business of restaurant/micro-brewery, entered into a Leave and License Agreement (LLA) and a Service Agreement (SA) with the Operational Creditor for the use of premises. The Operational Creditor claimed that the Corporate Debtor failed to pay rental dues and service charges amounting to Rs.7,66,52,157/-. The Corporate Debtor contended that the premises lacked requisite sanctions like Fire NoC and Occupancy Certificate, which prevented them from obtaining necessary licenses to operate their business. The Adjudicating Authority initially found that operational debt and default were established, but this was disputed by the Corporate Debtor. Issue 2: Default in Payment of Operational Debt The Corporate Debtor argued that due to the lack of requisite approvals from the Operational Creditor, they were unable to use the premises for the intended business, hence no payment was due. The Corporate Debtor consistently denied liability in their replies to notices and raised a counterclaim of Rs.7 crore. The Operational Creditor's failure to secure necessary compliances, according to the Corporate Debtor, absolved them from the obligation to pay under the LLA and SA. Issue 3: Pre-existing Dispute The Corporate Debtor highlighted a series of correspondences and notices, including arbitration notices, indicating long-standing disputes predating the Section 8 demand notice. The Tribunal referred to the Supreme Court's test in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Private Limited, which emphasizes that the existence of a dispute must be pre-existing before the receipt of the demand notice. The Tribunal found that the Adjudicating Authority erred in not recognizing the pre-existing disputes and treating the defense of the Corporate Debtor as moonshine. Conclusion: The Tribunal concluded that there were real and substantial disputes between the parties regarding the dues and necessary compliances, which predated the Section 8 notice. The Adjudicating Authority's decision to admit the Section 9 application was erroneous. Consequently, the Tribunal set aside the Impugned Order dated 12.05.2022, released the Corporate Debtor from CIRP, and allowed it to function independently. The Operational Creditor was directed to pay the fees/expenses of the Resolution Professional. The Tribunal also clarified that the Operational Creditor could seek alternative legal remedies if desired.
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