2023 (9) TMI 307 - AT - Insolvency and Bankruptcy

Maintainability of Section 9 application - pre-existing dispute - Respondent Company was a Commercially Solvent Company - HELD THAT - The issue whether there was a pre-existing dispute between the Parties is to be adjudicated on the touch stone of the ratio laid down by the Hon ble Apex Court in the matter of Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd 2017 (9) TMI 1270 - SUPREME COURT and in the matter of TRANSMISSION CORPORATION OF ANDHRA PRADESH LIMITED VERSUS EQUIPMENT CONDUCTORS AND CABLES LIMITED 2018 (10) TMI 1337 - SUPREME COURT , wherein the Hon ble Apex Court has held Existence of an undisputed debt is sine qua non of initiating CIRP. It also follows that the adjudicating authority shall satisfy itself that there is a debt payable and there is operational debt and the corporate debtor has not repaid the same. In the instant case, admittedly 97 % of the amount due for the invoices raised by the Appellant was paid and 3 % of the Invoices amount was withheld by the Respondent Company. It is the case of the Appellant that despite service of Notice on the Respondent Company at the address No. 11th, K.M. Hosur Road, Bommanahalli, No. 38/5/B Hyland, Industrial Estate, Bengaluru 68 , there was no reply and hence, a pre-existing dispute cannot be raised subsequent to the filing of the Section 9 Petition - It is not denied by the Appellant that the postal code of the Respondent s Registered Office Company is 560035. Be that as it may, in their Reply to this Section 9 Petition, the Respondent Company has raised a pre-existing dispute for having withheld the 3 % amount towards liquidated damages. It is the consistent stand of the Respondent Company that 97% of the Amount was paid and the balance 3 % was kept on hold only on account of evaluating customer satisfaction and it was established that there was a delay of six weeks on behalf of the Appellant Company in executing the job assigned to them on account of which liquidated damages / Penalty of Rs. 40,56,539/- which is as per the terms of the Contract was levied. Therefore, this Tribunal is of the considered view that there is a pre-existing dispute which is not a spurious defence which is a mere bluster. In the judgment of Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd., it is clearly held that the Court does not at this stage examine the merits of the dispute, but as long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the Adjudicating Authority has to reject the Application. This Tribunal is of the considered view that the aforenoted ratio is applicable to the facts of this case as we are satisfied that a dispute truly existed for the Respondent Company to have withheld 3% of the total invoice amount. Whether Section 9 Application can be entertained against a Solvent Company, the scope and objective of the Code has to be kept in mind before admission of such an Application? - HELD THAT - The spirit of the Code is maximization of the assets and Resolution and not Recovery. The Hon ble Supreme Court in the matter of Swiss Ribbons Pvt. Ltd. Anr. Vs. Union of India Anr. 2019 (1) TMI 1508 - SUPREME COURT has held that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. Appeal dismissed.

Summary

Issues Involved:
1. Pre-existing dispute between the parties.
2. Commercial solvency of the Respondent Company.

Summary:

Pre-existing Dispute:
The appeal challenges the Impugned Order dated 16/01/2020, which dismissed the Application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 by the Appellant, an Operational Creditor. The Appellant argued that despite timely supply of goods and raising invoices, 3% of the total invoice value remained unpaid, which was acknowledged by the Respondent in an email dated 26/08/2015. The Appellant issued a Demand Notice under Section 8 of the Code, which was not responded to by the Respondent. The Appellant contended that the Adjudicating Authority erroneously held that there was a pre-existing dispute due to the Respondent's claim of withholding the amount as liquidated damages. The Tribunal, however, noted that the Respondent had consistently communicated through emails that 3% of the payment was withheld pending final sign-off and due to delays in project execution, thereby establishing a pre-existing dispute. The Tribunal referenced the Supreme Court's judgment in 'Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd.' to emphasize that the existence of a genuine dispute necessitates the rejection of the Section 9 Application.

Commercial Solvency:
The Appellant argued that the Adjudicating Authority's finding that the Respondent Company is commercially solvent and hence Section 9 Petition cannot be admitted is perverse. The Respondent countered that the Demand Notice was not delivered to the correct address and that there was a pre-existing dispute regarding liquidated damages. The Tribunal upheld the Adjudicating Authority's decision, stating that the Code is not a substitute for a recovery forum and emphasized the importance of determining default over the company's solvency. The Tribunal cited the Supreme Court judgment in 'Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Anr.' to highlight that the Code's primary focus is on the revival and continuation of the corporate debtor rather than mere recovery for creditors.

Conclusion:
The Tribunal dismissed the appeal, concluding that there was a pre-existing dispute and the Respondent's commercial solvency was not a relevant factor for admitting the Section 9 Application. All pending interlocutory applications were also closed.