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2024 (12) TMI 91 - AT - IBCAdmission of Section 9 application filed by the Operational Creditor - initiation of CIRP - pre-existing disputes between the parties or not - payment to the Operational Creditor was due and payable by the Corporate Debtor or not - default committed by the Corporate Debtor or not - operational debt exceeds the prescribed threshold level and is undisputed debt or not - HELD THAT - The Adjudicating Authority after noting the above admissions made by the Corporate Debtor has observed that the same amounts to be a clear acknowledgment of debt of Rs 1.76 cr being due and payable. It is equally pertinent to note that the letter of 22.04.2015 further explains the financial challenges and precarious situation arising out of ongoing litigations faced by the Corporate Debtor which has led to their outstanding dues in the payment of service charges to their vendors despite all their endeavours to pay off these dues in a timely manner. The email of 07.03.2016 also contains an admission on the part of the Corporate Debtor of the need to clear the dues of the Operational Creditor on priority by resorting to sale of stock lying in the Kolkata warehouse. Thus, no error was committed by the Adjudicating Authority in holding that the Corporate Debtor has duly admitted the outstanding debt and default which is a valid and proper admission in the eyes of law. Whether there is existence of dispute between the parties to satisfy the third test laid down in the Mobilox judgement 2017 (9) TMI 1270 - SUPREME COURT ? - HELD THAT - The Adjudicating Authority had ordered on 27.03.2023 to explain how the misappropriation of disputes was handled by the Corporate Debtor in their books of accounts following which the Corporate Debtor had submitted a single page screen shot of a ledger reflecting a ledger entry dated 30.06.2016, the amount of which roughly resembled the alleged misappropriated amount as is placed at page 388 of Appeal Paper Book - Besides the fact that the date in the ledger entry happened to be a date which preceded the allegation of misappropriation of goods, we notice that the Adjudicating Authority upon noticing the vulnerability of relying on the one-page screen shot of the ledger produced by the Corporate Debtor, the Corporate Debtor was directed on 23.06.2023 to produce a detailed ledger account. In their detailed ledger as placed at pages 402-437 of APB, no entry contained in the earlier screen shot can be seen - the Corporate Debtor failed to produce plausible evidence before the Adjudicating Authority to corroborate that there was a pre-existing dispute between the parties with regard to Operational Creditor having misappropriated any goods - the ground of disputes raised by the Corporate Debtor therefore deserves to be disregarded being in the nature of a moonshine defence. The findings of the Adjudicating Authority that facts on record speak loud and clear that the Corporate Debtor has all along admitted that it owed an operational debt to the Operational Creditor and that it was end eavouring to clear the dues which amount was in excess of the threshold limit. The contents of the letter dated 22.04.2015 and email dated 07.03.2016 make it amply clear that the Corporate Debtor had admitted the operational debt. The aforementioned admissions by the Corporate Debtor amounts to be a clear acknowledgment of debt being due and payable - the grounds on which alleged disputes have been claimed by the Corporate Debtor are feeble and not supported by credible evidence. This puts a serious question mark on the bona-fide of the bogey of pre-existing disputes raised by the Corporate Debtor. The Adjudicating Authority therefore does not appear to have committed any error in holding that all requisite conditions necessary to trigger CIRP under Section 9 stands fulfilled and that the grounds of pre-existing disputes do not rest on genuine foundations. Thus, even on the third test laid down by Mobilox judgment, the contention of the Appellant fails. Thus, no error has been committed by the Adjudicating Authority in admitting the application under Section 9 of IBC. There are no merit in this Appeal. Appeal is dismissed.
Issues Involved:
1. Whether the Adjudicating Authority failed to consider pre-existing disputes between the Corporate Debtor and the Operational Creditor while admitting the Section 9 application under the Insolvency and Bankruptcy Code, 2016. 2. Whether the operational debt was due and payable by the Corporate Debtor and if any default was committed. 3. Whether the alleged pre-existing disputes were genuine and substantial enough to dismiss the Section 9 application. Detailed Analysis: 1. Pre-existing Disputes: The primary issue raised by the Appellant was that the Adjudicating Authority did not take into account the pre-existing disputes between the Corporate Debtor and the Operational Creditor. The Appellant argued that the Operational Creditor acted in contravention of the Service Agreement by denying access to warehouses and illegally withholding assets, which led to financial losses for the Corporate Debtor. The Appellant contended that these actions constituted pre-existing disputes, which should have been considered before admitting the Section 9 application. The Corporate Debtor had also notified the Operational Creditor about these disputes in a Notice of Dispute dated 07.03.2020, which was acknowledged by the Operational Creditor. However, the Adjudicating Authority found that the Corporate Debtor's claims of pre-existing disputes were not substantiated by credible evidence and appeared to be a strategy to avoid payment of the legitimate dues owed to the Operational Creditor. 2. Operational Debt and Default: The Tribunal examined whether the operational debt exceeded the prescribed threshold and was due and payable. The Operational Creditor presented evidence, including a letter dated 22.04.2015 and an email dated 07.03.2016, where the Corporate Debtor acknowledged the debt and requested more time for payment due to financial difficulties. The Adjudicating Authority found these correspondences to be clear admissions of liability by the Corporate Debtor. The Corporate Debtor had made partial payments, further indicating acknowledgment of the debt. The Tribunal concluded that the Corporate Debtor had admitted the outstanding debt and default, which was a valid admission in the eyes of the law. 3. Examination of Alleged Pre-existing Disputes: The Tribunal assessed whether the alleged disputes were genuine. The Corporate Debtor claimed that the Operational Creditor had misappropriated goods and illegally sold stocks without consent. However, the Tribunal noted discrepancies in the Corporate Debtor's financial records and ledger entries, which appeared manipulated. The Adjudicating Authority had sought explanations for these discrepancies, but the Corporate Debtor's responses failed to inspire confidence. The Tribunal found that the Corporate Debtor had not provided plausible evidence to corroborate the alleged pre-existing disputes. The Tribunal was persuaded that the claims of disputes were a moonshine defense, lacking genuine substance. Conclusion: The Tribunal upheld the Adjudicating Authority's decision to admit the Section 9 application, finding no error in the conclusion that the Corporate Debtor owed an operational debt exceeding the threshold limit and that the alleged pre-existing disputes were not genuine. The Tribunal dismissed the appeal, allowing the Corporate Insolvency Resolution Process (CIRP) to proceed against the Corporate Debtor in accordance with the law.
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