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2023 (10) TMI 237 - AT - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - pre-existing dispute or not - whether the Corporate Debtor created a moonshine defence on frivolous grounds or there were genuine pre-existing disputes which escaped the attention of the Adjudicating Authority while passing the impugned order? - HELD THAT - From the material facts available on record and in particular the email dated 15.06.2018, cognizance taken that it has been categorically admitted by the Corporate Debtor that this cyclical business arrangement was not supported by any written document. It is also noticed that the first reference to a cyclical business arrangement was admittedly made by the Corporate Debtor in their email sent to the Operational Creditor on 15.06.2018. It is also an undisputed fact that the contents of this email of 15.06.2018 was specifically denied by the Operational Creditor on 21.06.2018 and 09.07.2018. Both the above emails bear ample testimony to the fact that the Operational Creditor had denied any cyclical business arrangement having been agreed between them at any stage. The present facts on record clearly show that the Operational Creditor supplied and delivered raw material to the Corporate Debtor and raised corresponding invoices. No dispute has been raised by the Corporate Debtor with respect to quantity and quality of goods received by them. Corporate Debtor admittedly had made several part-payments against invoices from 01.03.2017 till 28.02.2018 - The Corporate Debtor has failed to produce any proof to show that it had made full and final payments to the Operational Creditor. The existence of debt due and payable by the Corporate Debtor has also not been controverted by the Corporate Debtor. No material has been placed on record by the Corporate Debtor to show that they had categorically rejected the outstanding dues claimed by the Operational Creditor prior to issue of demand notice. From a plain reading of the emails of the Corporate Debtor at pages 147-152 of AA, there arises no doubt in our minds that the Corporate Debtor had acknowledged that there was debt due and payable to the Operational Creditors - While admitting that the civil suit was filed subsequent to the issue of notice under Section 8 of IBC, it has been contended that there is no need in every case for a civil suit or an arbitration to be pending before Section 8 notice and that a dispute as understood by the IBC is not limited to a pending suit or an arbitration but includes a real dispute as to payment between the parties. The Adjudicating Authority in the present case has carefully considered the reply and submissions made by the Corporate Debtor and has correctly come to the conclusion that there is no ground to establish any real and substantial pre-existing dispute - there are no convincing reasons to be persuaded that there was any genuine pre-existing dispute. The Adjudicating Authority did not commit any mistake in admitting the Section 9 application of the Operational Creditor - impugned order does not warrant any interference - Appeal dismissed.
Issues Involved:
1. Pre-existing dispute. 2. Cyclical business arrangement. 3. Arbitration request and Civil Suit. 4. Financial incapacity and acknowledgment of debt. 5. Intervention applications and CIRP costs. Summary: 1. Pre-existing dispute: The Appellant argued that the Adjudicating Authority erroneously disregarded the pre-existing dispute raised by the Corporate Debtor in emails dated 15.06.2018 and 30.07.2018, which preceded the Section 8 notice. These emails highlighted a cyclical business arrangement and requested arbitration to avoid litigation, indicating pre-existing disputes. 2. Cyclical business arrangement: The Corporate Debtor claimed a cyclical business arrangement involving multiple parties, which the Operational Creditor disrupted by not buying yarn, leading to financial issues. However, the Operational Creditor denied any such arrangement, stating that only a repayment and recycling plan was discussed, which the Corporate Debtor failed to honor. 3. Arbitration request and Civil Suit: The Corporate Debtor's request for arbitration and filing of a Civil Suit were presented as evidence of pre-existing disputes. The Operational Creditor countered that there was no formal arbitration agreement, and the Civil Suit was an after-thought filed post the Section 8 notice. The Adjudicating Authority found no credible pre-existing dispute, noting that the arbitration request was not agreed upon by the Operational Creditor. 4. Financial incapacity and acknowledgment of debt: The Operational Creditor argued that the Corporate Debtor admitted the debt but defaulted due to financial incapacity. Emails from the Corporate Debtor acknowledged the debt and proposed repayment plans, citing financial difficulties due to GST and demonetization. The Adjudicating Authority found that the Corporate Debtor failed to clear the debt and raised spurious disputes to avoid insolvency proceedings. 5. Intervention applications and CIRP costs: Various intervention applications were filed, including by Vijay Cotton and Fibre Company LLP and Indian Bank, seeking to be recognized as financial creditors. The IRP also sought directions regarding CIRP costs. The Tribunal directed the IRP to constitute the CoC and proceed with CIRP, allowing intervenors to seek remedies before appropriate forums. Conclusion: The Tribunal upheld the Adjudicating Authority's order, finding no merit in the appeal and dismissing it. The interim stay on the constitution of CoC was vacated, and the IRP was directed to proceed with CIRP. All intervention applications were disposed of with respective directions.
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