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TMI Blog2022 (9) TMI 377X X X X Extracts X X X X X X X X Extracts X X X X ..... s with insolvency and bankruptcy. It is not the object of the IBC that CIRP should be initiated to penalize solvent companies for non-payment of disputed dues claimed by an operational creditor. There are noticeable differences in the IBC between the procedure of initiation of CIRP by a financial creditor and initiation of CIRP by an operational creditor. On a reading of Sections 8 and 9 of the IBC, it is patently clear that an 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, for IBC does not countenance dishonesty or deliberate failure to repay the dues of an Operational Creditor. However, if the debt is disputed, the application of the Operational Creditor for initiation of CIRP must be dismissed. Appeal dismissed. - CIVIL APPEAL NO. 4583 OF 2022 - - - Dated:- 15-7-2022 - HON'BLE MS. JUSTICE INDIRA BANERJEE AND HON'BLE MR. JUSTICE V. RAMASUBRAMANIAN For the Appellant : Mr. Ratnanko Banerjee, Sr. Adv., Mr. Sanjeev Sen, Sr. Adv., Ms. Poonam Verma, Adv., Mr. Sidharth Sethi, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed raising invoices of HBL and 29.12.2013. 7. Suffice it to mention that on 29.12.2013, HBL sent an email to the appellant pointing out that the appellant had been violating the terms of the purchase order and backing out from its commitments thereunder, thereby causing huge losses to HBL. HBL contended that because of the failure of the appellant to honour its commitments in terms of the Tenders/Purchase Orders it had to procure materials from other vendors. 8. On 02.01.2014, HBL sent a letter to the appellant stating that the appellant had acted in violation of the General Terms and Conditions, inter alia, by raising improper invoices for materials not supplied, not renewing bank guarantees, failing to effect supplies and complete work within the stipulated period. It was alleged that the service rendered and/or materials supplied by the appellant were of poor quality. 9. On 03.01.2014, HBL raised a debit note in respect of consumption by the appellant of spares and consumables from the warehouse of HBL. A series of correspondence followed. By a letter dated 11.4.2014 addressed to the appellant, HBL made allegations with regard to the service rendered and/or goods suppli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the receipt of such notice or invoice in relation to such dispute; (b) the payment of unpaid operational debt- (i) by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or (ii) by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor. Explanation.-For the purposes of this section, a demand notice means a notice served by an operational creditor to the corporate debtor demanding payment of the operational debt in respect of which the default has occurred. 9. Application for initiation of corporate insolvency resolution process by operational creditor.-(1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under subsection (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process. (2) The application under sub-section (1) sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any disciplinary proceeding is pending4 against any proposed resolution professional: Provided that Adjudicating Authority, shall before rejecting an application under subclause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the adjudicating Authority. (6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5) of this section. 14. On 15.02.2018, the appellant filed its application under Section 9 of the IBC for initiation of CIRP against HBL, as stated above. By the order dated 12.02.2020, the Adjudicating Authority (NCLT) admitted the said application of the Appellant. The Adjudicating Authority, inter alia, held: 17. As regards the pre-existing dispute, we have gone through all the facts stated by the Corporate Debtor but having regard to the quantum of claim in respect of supplies order, in our considered view, the amount of disputed claim due and payable will be more than Rs. One lakh in any case. Hence, such claims do not help the case of Corporate Debtor in substantial manner. Having sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt takes into consideration all these disputes raised by the Corporate Debtor, hence, the amount payable by the Corporate Debtor remains in positive which is more than one lakh ultimately that too when we have considered the project as a whole against the claim of Operational Creditor of undisputed dues of supply portion only. We have also gone through the emails which have been taken into consideration. While preparing this provisional statement. Hence, on the basis of material on record, it cannot be said that any other dispute remains to be considered. Apart from this, the fact which is crucial to note is that the Corporate Debtor has awarded new work orders to the Operational Creditor subsequently which means that all the disputes relating to this contract had been considered/resolved and this fact has remained undisputed. Further, Form C s have been issued as late as up to March 2018. We further make it clear that we have analysed the provisional statement with limited objective of admissibility of this application and this analysis cannot be considered as expression of opinion on the amount of claim in any manner which may be actually due and payable. 15. In our consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t bring to the notice of the operational creditor the existence of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the dispute is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application. 18. In K Kishan vs. Vijay Nirman Co. (P) Ltd. (2018) 17 SCC 662 , cited by the NCLAT in its impugned judgment, this Court held:- 22. Following this judgment, it becomes clear that operational creditors cannot use the Insolvency Code either prematurely or for extraneous consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplied and had failed to effect supplies and complete work within a stipulated period; debit note dated 03.01.2014 raised by HBL in respect of consumption by the appellant of spares and consumables from the warehouse of HBL; letter dated 11.04.2014 from HBL to the Appellant, inter alia, contending there was no payment outstanding from HBL to the appellant and claiming that a sum of Rs.1.49 Crores was due from appellant to the HBL excluding consequential losses; an email dated 07.05.2014 from HBL to the appellant declining to release money claimed by the appellant on the ground of poor quality of work and breaches of the terms and conditions of the Purchase Order. 21. Going by the test of existence of a dispute, it is clear that HBL had raised a plausible defence. It was not for the Adjudicating Authority to make a detailed examination of the respective contentions and adjudicate the merits of the dispute at this stage. 22. As held by the NCLAT :- The facts of the present case are being examined in the light of the law laid down by the Hon ble Supreme Court, though the Learned Counsel for the Operational Creditor has strenuously contended that the issuance of further wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contractor, had delayed the performance of its obligations in terms of the contract. In the aforesaid letter, HBL enumerated the lacuna and lapses of the Appellant in the performance of the contract and the various breaches of contract committed by the Appellant and also made a categorical assertion that till 31.07.2013, there was no amount outstanding from HBL to the Appellant. Rather there was a recovery from the Appellant. 26. In the impugned order, NCLAT set out a communication dated 02.01.2014 from HBL to the Appellant giving details of the acts and omissions of the Appellant, which tantamounted to breaches of contract on the part of the Appellant. Several other letters were also set out in the impugned order. 27. The impugned order takes note of the averment in the Appellant Operational Creditor s Reply before the NCLT that despite several requests and reminder letters from 2013 to 2017, the Corporate Debtor HBL did not pay the amounts due, but raised baseless allegations and disputes. 28. The NCLAT found: 13. . It is the case of the Operational Creditor that there is no Existence of Dispute prior to the issuance of Demand Notice. In their email dated 08 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losses were incurred. 16. On 29.03.2014, it is the case of the Corporate Debtor that the Operational Creditor had abandoned the site and therefore, the Corporate Debtor had to take over the Project and make all the relevant payments to the vendor. 19. It is pertinent to note that on 09.07.2016, prior to the issuance of the Demand Notice under Section 8 of the Code , the Operational Creditor invoked Arbitration pursuant to the 8 project orders issued by the Corporate Debtor , which itself substantiates the Existence of a Dispute . In the Notice invoking Arbitration, the Operational Creditor has stated that there is an outstanding of Rs.18,12,21,452/- and has further stated that they are ready to settle the disputes through Arbitration. 22. The communication between the parties as noted in para 10 read together with the Arbitration invoked by the Operational Creditor , we are of the considered view that there is an Existence of a Dispute between the parties which is a genuine dispute and not a spurious, patently feeble legal argument or an assertion of fact unsupported by evidence . 29. The HBL raised serious allegations against the appellant of breach ..... X X X X Extracts X X X X X X X X Extracts X X X X
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