2023 (9) TMI 1260 - AT - Insolvency and Bankruptcy

Admissibility of application u/s 9 of IBC - operational debt qua the Corporate Debtor is due and payable or not - pre-existing dispute between the parties or not - HELD THAT - This examination would be in consonance with the test which has been laid down by the Hon ble Supreme Court in MOBILOX INNOVATIONS PRIVATE LIMITED VERSUS KIRUSA SOFTWARE PRIVATE LIMITED 2017 (9) TMI 1270 - SUPREME COURT where it was held that Admittedly, the matter has never been resolved. Also, the respondent itself has not commenced any legal proceedings after the e-mail dated 30th January, 2015 except for the present insolvency application, which was filed almost 2 years after the said e-mail. All these circumstances go to show that it is right to have the matter tried out in the present case before the axe falls. The Adjudicating Authority has failed to take cognizance of the fact that there clearly existed dispute between the two parties anterior to the date of demand notice in respect of the terms and conditions of their business transactions as also on the liability to discharge the obligations to pay. Moreover, keeping in mind that IBC bestows only summary jurisdiction upon the Adjudicating Authority and this Tribunal, once plausibility of a pre-existing dispute is shown, it is not required of them to make further detailed investigation. What has to be looked into is whether the defence raises a dispute which needs further adjudication by a competent court. It is well settled that in a Section 9 proceeding, the Adjudicating Authority is not to enter into final adjudication with regard to existence of dispute between the parties regarding the operational debt. There was no reason for the Adjudicating Authority in the present case to go under the skin of dispute to unravel who is the principal debtor. There are force in the contention of the Appellant that since they had never accepted any liability to make payments to the Operational Creditor and that given the fact that there was pre-existing dispute surrounding the oral agreement of 08.05.2019 and modified arrangement on 05.09.2019, the Section 9 application ought not to have been admitted by the Adjudicating Authority in terms of the judgment of the Hon ble Supreme Court in Mobilox. 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. The Corporate Debtor is released from the rigours of CIRP and is allowed to function independently through its board of directors with immediate effect - Appeal allowed.

Summary

Issues Involved:
1. Existence of operational debt and default.
2. Pre-existing dispute.
3. Jurisdiction and scope of the Adjudicating Authority under IBC.

Summary:

Existence of Operational Debt and Default:
The appeal arises from the order dated 12.04.2023 by the National Company Law Tribunal (NCLT), Mumbai Bench-IV, which admitted the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) filed by the Operational Creditor (Respondent No.1) and initiated Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Corporate Debtor had issued a purchase order on 08.05.2019, and the Operational Creditor supplied goods accordingly. Payments were partially made, leaving an outstanding debt of Rs.1,37,14,859/-. The Operational Creditor issued a demand notice under Section 8 of IBC on 22.02.2021, which the Corporate Debtor replied to on 09.03.2021. The Adjudicating Authority admitted the Section 9 application, leading to the present appeal by the suspended Director of the Corporate Debtor.

Pre-existing Dispute:
The Appellant contended that payments were to be made directly by Anwesha, not the Corporate Debtor, as per an understanding reached on 05.11.2019. The Operational Creditor had accepted this arrangement and received payments from Anwesha. The Appellant argued that there was a pre-existing dispute regarding the payment terms, evidenced by communications and the conduct of the parties. The Operational Creditor's issuance of a demand notice after Anwesha entered CIRP indicated an attempt to use IBC as a recovery forum, contrary to its objectives.

Jurisdiction and Scope of the Adjudicating Authority:
The Adjudicating Authority should determine the existence of operational debt, its default, and any pre-existing dispute as per the Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. guidelines. The Appellant argued that the Adjudicating Authority erred in not recognizing the pre-existing dispute and the modified payment arrangement. The Operational Creditor's conduct, such as accepting post-dated cheques from Anwesha and not challenging the new payment arrangement, supported the existence of a dispute.

Judgment:
The Tribunal found that the Adjudicating Authority failed to recognize the pre-existing dispute and the modified payment arrangement. The Operational Creditor's conduct indicated acceptance of the new arrangement. The Tribunal concluded that the Section 9 application should not have been admitted due to the pre-existing dispute and the lack of liability on the Corporate Debtor's part. The impugned order dated 12.04.2023 initiating CIRP was set aside, and the Corporate Debtor was released from CIRP. The Operational Creditor was allowed to seek alternative legal remedies. The appeal was allowed with no costs, and the Operational Creditor was directed to pay nominal fees and actual expenses incurred by the IRP.