2023 (3) TMI 1075 - AT - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of discernible pre-existing dispute surrounding the debt claimed to be due and payable by the Operational Creditor or not - HELD THAT - The Corporate Debtor in its reply dated 08.08.2020 to the Section 8 demand notice had disputed both the quantum of operational debt and also deficiencies in respect of discharge of contractual obligations by the Operational Creditor. There are no material to have been placed on record by the Operational Creditor wherein the Corporate Debtor can be said to have unambiguously admitted the operational debt claimed by the Appellant - the Adjudicating Authority has rightly observed in the impugned order that the Corporate Debtor had raised an issue with regard to the existence of amount claimed by the Operational Creditor and asked for reconciliation of accounts. Deficiencies in respect of discharge of contractual obligations by the Operational Creditor as raised by the Corporate Debtor - whether there was a plausible dispute supported by the materials raised by the Corporate Debtor in Reply to Demand Notice? - HELD THAT - On looking into the contents of allegations made in the Reply to the Demand Notice, it is clear that Reply notice raises substantial and genuine issues to oppose the claim of the Operational Creditor s amount due. The issue of deficiency in terms of defects and delays in respect of supplies received from the Operational Creditor was raised by the Corporate Debtor prior to issue of demand notice of 29.07.2020 as borne out from a series of emails placed at pages 432-437 of APB. Concisely put, the email dated 10.10.2017 from the Corporate Debtor raises issues about repair/replacement of supplies made; email dated 18.10.2017 relates to complaint about oil drums having been sent without sealing; email dated 18.05.2018 is about non-supply of oil; email dated 29.11.2018 is about oil drums sent without sealing; email dated 23.02.2019 is about repair of leaking power transformers; email dated 15.10.2019 and 26.11.2019 are about repair of power transformers. These emails which are on record clearly substantiate that the Operational Creditor was put to notice regarding non-supply of goods, delay in supplies, supply of defective goods which are clear signs of pre-existing disputes. The Adjudicating Authority having noted that the arbitration proceedings were kick-started by the Corporate Debtor starting September 2020, also observed that these arbitration proceedings were clearly initiated after the issuance of the demand notice in July 2020. Hence, it has been rightly held by the Adjudicating Authority that the invocation of the arbitration proceedings being subsequent to the issue of the demand notice cannot be treated as a pre-existing dispute. There exists a pre-existing dispute with respect to the existence of amount due and payable and quality of goods and services supplied by the Operational Creditor to the Corporate Debtor. 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. The ratio of judgment by the Hon ble Supreme Court in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Private Limited 2017 (9) TMI 1270 - SUPREME COURT is indeed squarely applicable in the present case and has been correctly applied by the Adjudicating Authority. The Adjudicating Authority did not commit any error in rejecting the Section 9 Application filed by the Appellant on the ground of pre-existing dispute. There is no merit in the Appeal - Appeal dismissed.

Summary

Issues Involved:

1. Pre-existing dispute regarding the outstanding amount and quality of goods and services.
2. Reconciliation of accounts.
3. Deficiencies in discharge of contractual obligations by the Operational Creditor.
4. Invocation of arbitration proceedings after the demand notice.

Summary:

Pre-existing Dispute:
The Adjudicating Authority dismissed the Section 9 application filed by the Appellant (Operational Creditor) on grounds of a pre-existing dispute concerning the outstanding amount and quality of goods and services rendered by the Operational Creditor. The Corporate Debtor had disputed the claim of the Appellant and raised other disputes, which were acknowledged in the reply to the demand notice dated 08.08.2020.

Reconciliation of Accounts:
The Corporate Debtor argued that no default could have arisen prior to the reconciliation of accounts. The Hon'ble Supreme Court's ruling in Sabarmati Gas Ltd. v. Shah Alloys Ltd. was cited, wherein failure to reconcile accounts qualifies as a pre-existing dispute. The Adjudicating Authority noted that the Appellant had sent emails for reconciliation of accounts, indicating a dispute around the debt due and payable.

Deficiencies in Contractual Obligations:
The Corporate Debtor raised issues about deficiencies in the supply of goods, including non-submission of performance bank guarantees, delays in supplies, and supply of defective goods. These issues were raised in the reply to the demand notice and were supported by emails from the Corporate Debtor to the Operational Creditor, substantiating the existence of pre-existing disputes.

Arbitration Proceedings:
The Corporate Debtor had filed five applications under the Arbitration and Conciliation Act, 1996, after the issuance of the demand notice. The Adjudicating Authority noted that these arbitration proceedings were initiated after the demand notice and could not be treated as a pre-existing dispute.

Conclusion:
The Adjudicating Authority found sufficient evidence of a pre-existing dispute between the parties before the issuance of the demand notice. The defence raised by the Corporate Debtor was not considered spurious or frivolous. The judgment of the Hon'ble Supreme Court in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Private Limited was applied, leading to the dismissal of the Section 9 application. The appeal was dismissed, with the Appellant free to seek other legal remedies.