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2024 (3) TMI 646 - AT - Insolvency and BankruptcyAdmission of section 9 application - initiation of CIRP - pre-existing disputes or not - appellant submits that even though no reply of Section 9 application could be filed but reply to demand notice contains specific details by which Corporate Debtor has given notice of dispute - HELD THAT - The Adjudicating Authority has not noticed the contents in the reply to demand notice given by the Appellant fully and the observation that reply raises issue only two invoices 203 and 205 is incorrect. It is true that the Corporate Debtor could not file reply to Section 9 application although in the appeal, Suspended Director of the Corporate Debtor has sought to given reason as to why it could not appear and file reply, it is not necessary to enter into the said issue. The fact remain that no reply has been filed. The Corporate Debtor, however, has filed certain other correspondences between the parties prior to demand notice to which reply has also been filed by the Operational Creditor. The correspondence which was brought on the record in the appeal prior to demand notice has not been denied. The demand notice dated 25.08.2021 was sent on the basis of ledger confirmation treating to be principal amount due as Rs.1,79,93,691/-. The demand notice was replied on 20.11.2021 and with regard to faulty cables, the Corporate Debtor has issued a debit note for Rs.67,96,800/- and further stated debit note for amount of Rs.50,00,000/- towards non-supply of G.I. Pipe for Bill number 203. The above reply to demand notice clearly indicate the dispute regarding the claim of the Appellant - there are ample materials on record to indicate that there was pre-existing dispute between the parties and reply dated 20.11.2021 replying the demand notice was not disputed, reply cannot be said to be based on no material or no evidence nor the defence raised by the corporate debtor in the reply to demand notice can be said to moonshine dispute or frivolous dispute as contended by the counsel for the Appellant. Issue of faulty cables between the parties was going on immediately after supply of the goods and joint inspection was also done on 08.12.2019 but there is no redemption was seen when faulty cables was measured. The fact thus, clearly indicate that dispute persisted between the parties and reply to the demand notice was clearly notice of dispute and, therefore, pre-existing dispute between the parties, Section 9 application ought not to have been admitted. The Hon ble Supreme Court in M/S S.S. ENGINEERS VERSUS HINDUSTAN PETROLEUM CORPORATION LTD. ORS. 2022 (9) TMI 377 - SUPREME COURT clearly held that the operational creditor can only trigger the CIRP process, when there is an undisputed debt and a default in payment thereof. If the claim of an operational creditor is undisputed and the operational debt remains unpaid, CIRP must commence. However, if the debt is disputed, the application of the operational creditor for initiation of CIRP must be dismissed - Present is a clear case where claim raised by the operational creditor where payment was disputed, notice of dispute was given on 20.11.2021. It is also noticed the correspondences between the parties prior to issuance of demand notice which indicate that the dispute persisted between the parties with regard to default in cable supplied. Thus there is pre-existing dispute between the parties and the Adjudicating Authority committed error in admitting Section 9 application. The order passed by the Adjudicating Authority set aside - Section 9 application filed by the operational creditor dismissed - appeal allowed.
Issues Involved:
1. Pre-existing dispute between the parties. 2. Admissibility of Section 9 application under the Insolvency and Bankruptcy Code (IBC). Summary: 1. Pre-existing dispute between the parties: The Corporate Debtor, 'Dhanlaxmi Electricals Private Limited', issued a purchase order to the Operational Creditor for the supply of AB Cables. The Operational Creditor raised invoices from 29.09.2019 to 06.10.2019. On 04.08.2021, the Corporate Debtor's Account Manager sent an email pointing out discrepancies in the ledger. The Operational Creditor issued a demand notice on 25.08.2021 for Rs.1,79,93,691/- plus interest. The Corporate Debtor responded on 20.11.2021, raising disputes about faulty cables and non-supply of materials, issuing debit notes for Rs.67,96,800/- and Rs.50,00,000/-. The Corporate Debtor also made a payment of Rs.61,00,000/- after receiving the demand notice. The Tribunal found that the disputes were not frivolous and were supported by evidence, indicating a pre-existing dispute. 2. Admissibility of Section 9 application under the Insolvency and Bankruptcy Code (IBC): The Operational Creditor filed a Section 9 application on 18.02.2023. The Adjudicating Authority admitted the application, despite the Corporate Debtor not filing a reply. However, the Tribunal noted that the Corporate Debtor had raised a dispute in its reply to the demand notice dated 20.11.2021. The Tribunal emphasized the statutory scheme under Sections 8 and 9 of the IBC, which requires the Adjudicating Authority to reject the application if a pre-existing dispute exists. The Tribunal found that the Adjudicating Authority failed to consider the full contents of the Corporate Debtor's reply and the evidence of disputes, including faulty cables and debit notes. Consequently, the Tribunal set aside the order admitting the Section 9 application, concluding that the disputes were not patently feeble or unsupported by evidence. Conclusion: The Tribunal allowed the appeal, set aside the Adjudicating Authority's order admitting the Section 9 application, and dismissed the application filed by the Operational Creditor. The IRP's fee and expenses were to be borne by the Operational Creditor, and parties were to bear their own costs.
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