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TMI Blog2024 (7) TMI 319X X X X Extracts X X X X X X X X Extracts X X X X ..... at the Respondent had consistently raised concerns about the machine s performance well before the Appellant served the demand notice. It is clear that there was in fact a genuine and bona-fide pre-existing dispute before the (defective/improper) service of the demand notice dated 19.05.2021. The existence of these disputes is substantiated by emails, requests for returns, and settlement discussions. Significant weight is put on the documented communication between the Respondent and the Supplier concerning the machine's performance issues. These communications, predating the demand notice, demonstrate a genuine dispute regarding the functionality of the machine. In light of the documented pre-existing dispute concerning the machine's performance, the Adjudicating Authority's decision to dismiss the application is upheld. The Appellant's arguments regarding service of the demand notice and the arbitration clause are immaterial given the presence of a pre-existing dispute. Appeal dismissed. - [ Justice Ashok Bhushan ] Chairperson , [ Barun Mitra ] Member ( Technical ) And [ Arun Baroka ] Member ( Technical ) For the Appellant : Mr. Preet Pal Singh, Ms. Tanupreet Ka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.67 5. 18.11.2019 68,666.67 6. 18.05.2020 67,666.65 Total Amount (Euro) 4,21,000.00 4. Issuance of Invoice and Delivery 4.1. In the course of the transaction, the Supplier issued invoice no. 21706064 dated 15th May 2017 for the total sum of Euro 535,780.00, adjusting for the advance payment of Euro 135,780.00 and agreeing on payment terms via the aforementioned promissory notes. Sl. No. Invoice No. Dated Invoice Amount (EURO) 1. 21706064 15.05.2017 535,780.00 Invoice Amount (EURO) 535,780.00 Down Payment (EURO) (135, 780.00) Original Outstanding Amount (EURO) 400,000.00 Agreed Interest @ 3% p.a. on the Original Outstanding Amount (EURO) 21,000.00 Outstanding Amount Including Interest (EURO) 421,000.00 4.2. The Supplier shipped the Machine to the Corporate Debtor via Bill of Lading No. 705EMA0446-EMA-170421 dated 18.05.2017. The Corporate Debtor accepted delivery of the Machine without protest or demur and issued an Acceptance Certificate dated 28th August 2017, acknowledging receipt of the Machine without objection and confirming that the Supplier's contractual obligations were duly executed. 5. Assignment of Obligations and non-payment 5.1. Subsequently, the Supplier assigned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and Absence of Pre-existing Dispute : 7.2. The Adjudicating Authority incorrectly concluded that the Corporate Debtor had raised a dispute before the service of the demand notice. The Machine was delivered under the Sales Contract dated 20th March 2017, and its receipt was accepted without objection via an acceptance certificate dated 28th August 2017. The Corporate Debtor's subsequent claims of non-performance are unsupported by evidence and do not constitute a pre-existing dispute as defined under the IBC. The Supplier s support rendered as a goodwill gesture has been misused by the Corporate Debtor to allege a purported dispute, which does not meet the criteria under the Act. Independence of Arbitration Clause from IBC Remedies 7.3. The Adjudicating Authority further erred in dismissing the Petition on the ground of the existence of an arbitration clause. The remedy of arbitration is independent and does not preclude the statutory remedy available under the IBC. The mere existence of an arbitration clause cannot deprive the Operational Creditor of its statutory rights under the IBC. Rebuttal to Corporate Debtor's Defense: 8. The Corporate Debtor, in an attempt to avoid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstrate the Respondent's ongoing attempt to resolve the situation outside of formal legal proceedings. 15. Improper Service: The Respondent further argues that the demand notice, a crucial step in initiating IBC proceedings, was never properly served. The NCLT order itself acknowledges the improper service. Supporting Case Law 16. The Respondent bolsters its arguments by citing relevant case law that establishes the legal principles at play: Mobilox Innovative Private Limited v. Kirusa Software Private Limited (2018) 1 SCC 353: This case clarifies that the Adjudicating Authority under the IBC must reject an application if a pre-existing dispute exists between the parties. Innoventive Industries v. ICICI Bank and Anr (2018) 1 SCC 407: This case reinforces the concept of a pre-existing dispute as a bar to initiating IBC proceedings. Here, the court highlights that the existence of such a dispute, not its merits, takes precedence at this stage. Ahluwalia Contracts (India) Limited v. Raheja Developers Limited (Company Appeal (AT) (Insolvency) No. 703 of 2018): This case emphasizes the need for a pre-existing dispute to be present before the demand notice is served. Rajratan Babula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The Respondent countered the Appellant's arguments and presented a compelling case for upholding the Adjudicating Authority's decision. The Respondent argued that the core issue centered on the Supplier's material breaches of the sales contract. These breaches manifested in two ways: the delayed delivery of the machine beyond the agreed date and the machine's inherent performance issues. The Respondent maintained that these issues significantly impacted the functionality of the equipment. To substantiate their claims of a pre-existing dispute, the Respondent provided a detailed record of communication with the Supplier. This record included emails documenting the performance problems encountered with the Alpha 190-D, requests for the return of the machine, and attempts to negotiate a settlement. The Respondent argued that these efforts demonstrably illustrated their ongoing attempts to resolve the situation outside of formal legal proceedings, highlighting a dispute that predated the filing of the insolvency application. Furthermore, the Respondent emphasized that the Adjudicating Authority rightly acknowledged the improper service of the demand notice. This proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not able to give proper temperature. Once we shifted the Gas from PNG to LPG than we got the temperature of 170 degree Celsius than we steamed the fabric and for further trials steamer temperature could not able to reach more than 170 degree Celsius. e. On 7.11.2017, the Respondent emailed the Supplier stating that neither any process flow nor quality parameters were achieved till date nor any timeline was adhered to. The Supplier/Appellant was only extending the timelines committed by it in spite of huge business losses incurred by the Respondent. The Respondent also stated that the Machine was lying idle due to non-resolution of the various performance issues/defects and requested the Supplier/Appellant to take the Machine and return it only after it was fully compliant and functional. f. Thereafter, the Supplier informed the Respondent vide email dated 23.01.2018 that further tests/trials needed to be undertaken on the Machine to which the Respondent replied vide email of the even date that it had already incurred significant expenditure which would have to be accounted for by the Supplier. g. On 07.03.2018, the Respondent received the report of the technical expert (Mr. Mario) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. This case clarifies that the Adjudicating Authority under the IBC must reject an application if a pre-existing dispute exists between the parties. b. Innoventive Industries v. ICICI Bank and Anr (2018) 1 SCC 407 wherein the Hon'ble Supreme Court held that: 29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned of a dispute or the record of the pendency of a suit or arbitration proceedings, which is p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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