2024 (11) TMI 1288 - AT - IBC

Maintainability of Section 9 application - rejection due to pre-existing disputes - operational debt - whether there is any infirmity in the impugned order passed by the Adjudicating Authority dismissing the Section 9 application on the ground that the operational debt claimed by the Appellant was embedded with pre-existing disputes? HELD THAT - It is clear from the agreement arrived at the meeting held on 26.01.2021 that the Operational Creditor had agreed to replace the defective pump sets and meet the standards as per the tender conditions which is a clear admission on their part for having been unable to discharge their obligations up to the expectations of the tender specifications. The Appellant has however contended that these minutes indicate that the dispute had come to an end and stood amicably settled - merely because a meeting was held between the two parties to overcome the shortcomings in the meeting the obligations of supply and installation of pump-sets cannot be taken to imply that all disputes between the parties had subsided without the parties being at ad idem on whether the obligations stood discharged on a mutually satisfactory basis. The Adjudicating Authority has concluded at paragraph 7 of the impugned order that the dispute which existed between the Operational Creditor and the Corporate Debtor prior to the demand notice about the quality of the pump sets supplied requires detailed inquiry and investigation by the proper forum and that the Adjudicating Authority is not that forum - the Adjudicating Authority did not commit any error in returning this finding keeping in mind that IBC bestows only summary jurisdiction upon the Adjudicating Authority. Once plausibility of a pre-existing dispute is noticed, it is not required of the Adjudicating Authority 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 requirement for the Adjudicating Authority in the present case to go under the skin of dispute and therefore the Adjudicating Authority rightly held that the Section 9 application was not maintainable in the present factual matrix. The defence taken by the Appellant that the Corporate Debtor was trying to manufacture disputes fails to succeed. The defence raised by the Corporate Debtor cannot be held to be moonshine, spurious, hypothetical or illusory. For such disputed operational debt, Section 9 proceeding under IBC cannot be initiated at the instance of the Operational Creditor. The Adjudicating Authority has therefore correctly noted that the conditions laid down in Section 9 having not been fulfilled, the application deserved to be rejected. There are no good reasons to disagree with the findings of the Adjudicating Authority. The Adjudicating Authority did not commit any error in rejecting the Section 9 Application filed by the Appellant - There is no merit in the Appeal - Appeal is dismissed.

Summary

Issues Involved:

1. Whether the Section 9 application was maintainable given the alleged pre-existing disputes.
2. Evaluation of evidence regarding the existence of pre-existing disputes.
3. The role of the Adjudicating Authority in determining the existence of disputes under the IBC framework.

Issue-wise Detailed Analysis:

1. Maintainability of Section 9 Application:

The primary issue was whether the Section 9 application filed by the Operational Creditor was maintainable, given the claim of pre-existing disputes by the Corporate Debtor. The Adjudicating Authority dismissed the application, citing the presence of pre-existing disputes. The Operational Creditor argued that the disputes were fabricated and not genuine, asserting that the Corporate Debtor's financial incapacity was the actual reason for non-payment. However, the Tribunal upheld the Adjudicating Authority's decision, emphasizing that the existence of disputes prior to the demand notice was sufficient to reject the Section 9 application under the IBC framework.

2. Evidence of Pre-existing Disputes:

The Tribunal evaluated the evidence presented to determine the existence of pre-existing disputes. The Corporate Debtor had communicated issues regarding delayed and defective supplies through emails and WhatsApp messages. While the Adjudicating Authority did not consider WhatsApp messages as evidence due to authenticity concerns, it relied on an email dated 07.01.2020, which highlighted issues with the pump-sets supplied by the Operational Creditor. This email, sent before the Section 8 demand notice, was deemed by the Tribunal as evidence of pre-existing disputes. The Tribunal also noted that the third-party inspection reports provided by the Operational Creditor were conducted before installation and did not verify the operational functionality of the pump-sets.

3. Role of Adjudicating Authority:

The Tribunal reiterated the limited jurisdiction of the Adjudicating Authority under the IBC, which is not to conduct a detailed investigation into disputes but to ascertain if a plausible dispute exists. Citing the Supreme Court's guidance in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., the Tribunal emphasized that the Adjudicating Authority's role is to identify whether the dispute is genuine and not spurious or illusory. The Tribunal agreed with the Adjudicating Authority's finding that the dispute required detailed inquiry by an appropriate forum, which was beyond the scope of the summary jurisdiction provided under Section 9 proceedings of the IBC.

Conclusion:

The Tribunal concluded that the defence raised by the Corporate Debtor was not spurious or illusory, and the existence of pre-existing disputes was established. Consequently, the Section 9 application was rightly dismissed by the Adjudicating Authority. The Tribunal dismissed the appeal, affirming that the Operational Creditor could pursue other legal remedies outside the IBC framework.