2024 (2) TMI 621 - AT - Insolvency and Bankruptcy

Dismissal of section 9 application - Initiation of CIRP - application dismissed on the ground that there is a pre-existing dispute between the parties - whether in the facts of this case, there is a pre-existing dispute or not and whether this Appeal can be allowed or not? - HELD THAT - The e-mail exchange dated 15.06.2021, 21.06.2021, 04.07.2021 and 05.07.2021 brings out clearly that the End Client is very concerned about the delay and the delivery of the final product and services. The End Client had conveyed its dissatisfaction on 04.07.2021 and also on 05.07.2021- much before the issue of Demand Notice under section 8 IBC 2016 and the Section 9(1) proceedings under the IBC, 2016 initiated on 12.11.2021 and all this is clear evidence that there is a dispute on the delivery of the product and services, in the form of e-wallet, which is part of the Software Development Agreement - In the meantime, the Appellant raised a consolidated invoice of Rs 1,46,32,000/- dated 21.07.2021 for all the remaining 11 milestones under schedule III of the agreement. Since there was no delivery of the services beyond milestone 4, it is difficult to comprehend the issuance of this invoice and also adds to another dimension of the pre-existing dispute. Later on, ignoring all the emails exchanged between the Appellant, Respondent and the End Client, which was clear evidence of the poor quality of the software programming and also the non-delivery of the product and dis-satisfaction of the End Client, for which the product was being made, which is much more than a feeble dispute, still the Appellant proceeded against the provisions of Section 8(2)(a) of the IBC and sent a demand notice to the Respondent on 08.10.2021 - It is worth noting that the Respondent had also sent an indemnity notice dated 29.10.2021 to the Applicant, mentioning about the ongoing dispute for faulty services, with payment platform programming code being defective and highly risky to go live as a payment platform. Further, Respondent had initiated the process for filing a claim petition before the Delhi High Court Mediation Centre as per Section 12A of the Commercial Courts Act, 2015. This fact is part of the record before the Adjudicating Authority. Even the Appellant has accepted its participation in the mandatory pre-institution mediation proceedings under Section 12A of the Commercial Courts Act, 2015. Appellant has further claimed that the disputes need to be handled as per Clause 3.4 as per the Agreement and unless the same has been raised in accordance with the clauses of the agreement, any reference of the Adjudicating Authority to any e-mail is a wrong assumption of pre-existing dispute - this is not a tenable argument for identifying a pre-existing dispute for the reasons that Adjudicating Authority is well within its rights to identify any pre-existing disputes, howsoever feeble it may be, basis the evidence available before it. When there is no proof of completion or delivery of the services or works in the appeal paper book or Application and with the afore-mentioned background, it can be safely concluded that with multiple events as discussed herein, there is sufficient evidence of pre-existing dispute regarding the product and services in the form of e-wallet and also incorrect raising of final invoice. Adjudicating Authority has rightly held that pre-existing dispute regarding outstanding unpaid balance was raised by the Respondent before issuance of the notice u/s 8 of the IBC, and hence this application is liable to be dismissed u/s 9(5)(ii)(d) and accordingly the Company Petition filed by the Operational Creditor was dismissed. Appeal dismissed.

Summary

Issues Involved:
1. Whether there is a pre-existing dispute between the parties.
2. Whether the appeal can be allowed.

Summary:

Issue 1: Pre-existing Dispute
The Appellant, M/s Kellton Tech Solutions Limited, entered into a "Software Development and Service Agreement" with the Respondent, M/s Actas Technologies Private Limited, for developing a customized e-wallet platform. The Appellant provided services and raised invoices, but the Respondent failed to pay the last two invoices. The Appellant claimed no pre-existing dispute existed as per the agreed mechanism in Clause 3.4 of the agreement. However, the Respondent argued there was a genuine pre-existing dispute regarding the quality and delivery of the work, supported by various emails and an indemnity notice. The Tribunal noted several key events indicating disputes, such as emails from the Respondent and the end client raising concerns about the quality and delay of the project. The Tribunal concluded there was sufficient evidence of a pre-existing dispute, citing the judgment of the Hon'ble Apex Court in Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited.

Issue 2: Allowance of Appeal
The Appellant claimed the Adjudicating Authority wrongly dismissed their application under Section 9 of the IBC. However, the Tribunal found no error in the Adjudicating Authority's decision, which was based on the evidence of pre-existing disputes. The Tribunal emphasized that the Appellant's participation in pre-institution mediation proceedings further supported the existence of a dispute. Consequently, the Tribunal upheld the dismissal of the application under Section 9(5)(ii)(d) of the IBC and dismissed the appeal.

Conclusion:
The Tribunal dismissed the appeal, affirming the Adjudicating Authority's finding of a pre-existing dispute and the dismissal of the Company Petition filed by the Operational Creditor.