2023 (12) TMI 856 - AT - Insolvency and Bankruptcy

Maintainability of Section 9 application - initiation of Corporate Insolvency Resolution Process (CIRP) - Corporate Debtor did not reply to the demand notice or send a notice of dispute - debt due and payable or not - default in payment of dues or not - pre-existing dispute between the parties or not - HELD THAT - A plain reading of the Clause 17 of the work agreement, clearly shows that in terms of Clause 17 of the Agreement, payment was to be made to the Operational Creditor only after corresponding payment was received by the Corporate Debtor from HG Infra. There is nothing shown by the Operational Creditor to substantiate that payments had been received by the Corporate Debtor and had therefore become due for payment to them. Further, the Operational Creditor was required to raise a notice for claims within 14 days of the date of occurrence of event and since no such notice had been raised, it is clear that no payment was claimed by the Operational Creditor in terms of Clause 18 of the Agreement. Further the final payment to the Operational Creditor was subject to a Taking Over Certificate for the work which certificate is also not placed on record - the Adjudicating Authority committed no error in relying on these clauses of the Work Order Agreement to come to the conclusion that the Operational Creditor has failed to establish default on part of the Corporate Debtor in payment of the operational debt. The Adjudicating Authority committed no error in concluding that the debit notes issued on grounds of defect in quality of services testifies the existence of a dispute. It is amply clear that there exists a pre-existing dispute with respect to the quality of services provided 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 their reply affidavit is a moonshine defence unsupported by any evidence. For such disputed operational debt, Section 9 proceeding under IBC cannot be initiated at the instance of the Operational proceeding under IBC cannot be initiated at the instance of the Operational Creditor - It is well settled that in Section 9 proceeding, there is no need to enter into final adjudication with regard to existence of dispute between the parties regarding operational debt. 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 is dismissed.

Summary

Issues Involved:
1. Whether operational debt had become due and payable.
2. Whether there was any default in payment by the Corporate Debtor.
3. Whether the debt was disputed.
4. Whether there was a pre-existing dispute between the parties.

Summary:

1. Operational Debt Due and Payable:
The Appellant, an Operational Creditor, claimed that the Corporate Debtor had engaged them for excavation and related services, and payments were made until 18.04.2018. An outstanding amount of Rs.1.58 crore remained unpaid, and a Section 8 demand notice was served on 30.07.2020, which the Corporate Debtor did not respond to. The Appellant filed a Section 9 application on 09.04.2021, which was rejected by the Adjudicating Authority.

2. Default in Payment:
The Respondent argued that no payment was due as per the Work Order Agreement dated 01.08.2014, which stipulated that payment to the Operational Creditor was contingent upon the Corporate Debtor receiving payment from HG Infra. Since HG Infra had not made any payment, the Corporate Debtor contended that no payment was due to the Operational Creditor.

3. Dispute of Debt:
The Respondent also claimed a dispute regarding the quality of work, which led to non-payment by the Agra Development Authority to HG Infra and subsequently to the Corporate Debtor. Debit notes amounting to Rs.1.24 crore were issued due to poor quality of services. The Adjudicating Authority found that there was a pre-existing dispute and rejected the Section 9 application.

4. Pre-existing Dispute:
The Tribunal examined Clauses 17 and 18 of the Work Order Agreement, which required payment to the Operational Creditor only after receipt of corresponding payment by the Corporate Debtor from HG Infra. The Tribunal found no evidence that such payments were received by the Corporate Debtor. The Tribunal also noted that the Operational Creditor did not raise a notice for claims within the stipulated time, and no "Taking Over Certificate" was placed on record.

Conclusion:
The Tribunal concluded that there was a pre-existing dispute regarding the quality of services provided by the Operational Creditor, supported by debit notes communicated via WhatsApp before the Section 8 demand notice. Citing the Mobilox judgment, the Tribunal held that the dispute was not spurious or frivolous, and thus, Section 9 proceedings could not be initiated. The appeal was dismissed, with the Tribunal affirming the Adjudicating Authority's decision to reject the Section 9 application on the grounds of a pre-existing dispute. The Appellant was advised to seek other remedies available under the law.