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TMI Blog2025 (1) TMI 485X X X X Extracts X X X X X X X X Extracts X X X X ..... e Operational Creditor does not receive payment from the Corporate Debtor or notice of the dispute under Section 8(2), he may file an Application under Section 9(1) of IBC - it is clear that the existence of dispute and its communication to the Operational Creditor is therefore statutorily provided for in Section 8. It is an undisputed fact in the present matter that the Operational Creditor did not receive any payment from the Corporate Debtor and had therefore proceeded to file an application under Section 9 of IBC. Pre-existing dispute - HELD THAT:- It is also a well settled proposition of law that for a pre-existing dispute to be a ground to nullify an application under Section 9, the dispute raised must be truly existing at the time of filing a reply to notice of demand as contemplated by Section 8(2) of IBC or at the time of filing the Section 9 application. In the present case, the pre-existing dispute has been predicated on notice invoking arbitration dated 19.01.2023 prior to the issue of Section 8 Demand Notice on 25.02.2023 as was highlighted by in the Notice of dispute of the Corporate Debtor dated 17.03.2023 - the reply to the Section 8 Demand Notice clearly articulate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the Corporate Debtor-New Era Solutions Private Limited. Aggrieved by the said impugned order, the present appeal has been filed by the Appellant-R.A.J. Krishna Construction Private Limited. 2. Making his submissions, Shri Harshit Khare, the Ld. Counsel for the Appellant-Operational Creditor submitted that the Appellant is engaged in the business of project management and consultancy and turnkey construction of infrastructure projects. The Appellant was awarded a work by Home Soul ( H S in short) vide a work order dated 12.10.2018. (For convenience, we shall hereinafter refer to the work order of 12.10.2018 as original work order ). Subsequently, an addendum to the work order of 12.10.2018 was issued on 09.01.2019. Attention was also adverted to another addendum to original work order which was signed on 14.12.2020 between the Operational Creditor and H S. Elaborating on the relevant clauses of the addendum of 14.12.2020, the Appellant asserted that clause-1 of the addendum made the Corporate Debtor responsible for execution of the original work order. In terms clause-2 of addendum of 14.12.2020, the Appellant was mandated to raise the Running Account Bills ( RA Bills in short) u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 8 demand notice on 25.02.2023 and the due amount qua the Corporate Debtor stood at Rs. 2.96 cr. The Corporate Debtor did not reply to the demand notice within 10 days but sent a belated reply on 17.03.2023. The Corporate Debtor also did not make any further payments within the stipulated time of ten days as provided for under the IBC. 5. In their belated reply to the demand notice dated 17.03.2023, the Corporate Debtor raised the issue of pre-existing dispute based on invocation of arbitration by issue of notice on 19.01.2023. It was contended that the Adjudicating Authority wrongly held the invocation of the arbitration notice as a pre-existing dispute. The Ld. Counsel of the Appellant emphatically asserted that this arbitration notice cannot be a ground for pre-existing dispute as this arbitration notice was not issued by the Corporate Debtor but had been issued by H S to the Appellant. Even endorsement of the arbitration notice by H S was not sent to the Corporate Debtor. When the Corporate Debtor was not a party to the arbitration notice, the notice cannot be held to be a ground for pre-existing dispute between Operational Creditor and Corporate Debtor. The Adjudicating Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le considering the application under Section 11(5) and (6) of Arbitration and Conciliation Act filed by H S held on 01.02.2024 that there has been no novation of the contract as placed at Annex R2 of their Reply affidavit. 8. It is also contended by the Respondent that the Operational Creditor has provided copies of unsigned and unverified running bills with their demand notice of 25.02.2023. RA Bills at Sl. Nos. 1 to 22 related to work order issued by H S on 12.10.2018. The Corporate Debtor on receipt of the demand notice had in their reply clearly and specifically stated that these bills were not signed by the Operational Creditor nor verified by the billing team of H S and the Corporate Debtor and hence been based on fraud and fabricated document. This aspect had been brought to the knowledge of the Adjudicating Authority in the Corporate Debtor s reply to the Section 9 application at pages 375-387 of APB. The Operational Creditor never refuted the reply of the Corporate Debtor that the payment advice/invoices are forged. It was also pointed out that the payment advice placed at pages128 to 131 and 137 to 144 of the Appeal Paper Book ( APB in short), there is clear evidence of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditor to be due and payable to them by the Corporate Debtor. 11. A look at the relevant statutory construct of IBC at this juncture would be useful. Section 8 of the IBC requires the Operational Creditor, on occurrence of a default by the Corporate Debtor, to deliver a Demand Notice in respect of the outstanding Operational Debt. Section 8(2) lays down that the Corporate Debtor within a period of 10 days of the receipt of the Demand Notice would have to bring to the notice of the Operational Creditor, the existence of dispute, if any. After issue of demand notice by the Operational Creditor, if the Operational Creditor does not receive payment from the Corporate Debtor or notice of the dispute under Section 8(2), he may file an Application under Section 9(1) of IBC. From a plain reading of the above provisions, it is clear that the existence of dispute and its communication to the Operational Creditor is therefore statutorily provided for in Section 8. It is an undisputed fact in the present matter that the Operational Creditor did not receive any payment from the Corporate Debtor and had therefore proceeded to file an application under Section 9 of IBC. 12. It is also a well settl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han the abuse of process of law. (Emphasis supplied) 13. The above reply to the Section 8 Demand Notice clearly articulates the ongoing arbitration between the two parties which predated the Section 8 demand notice. 14. Given this backdrop, it will be useful to find out how the Adjudicating Authority has considered the facts at hand to infer whether there existed prePage existing disputes. The relevant portions of the impugned order are as extracted hereunder: 12. As can be seen from Section 5 (6) (b) of the IBC 2016, the dispute includes a suit or arbitration proceedings relating the quality of goods or service. It does not provide that the same should be between the OC and the CD only. It is not the case of the OC that the amount of defaulted operational debt referred to by him pertain to any work other than the one involved in work order dated 12.10.2018 referred to in the arbitral notice dated 19.01.2023. We can also see from the Section 8 (2) of IBC 2016 that the dispute should exist before the receipt of notice or invoice in relation to such dispute. Even the said provision also does not talk of the dispute being raised by CD only. The construction of Section 8 (2) (a) of IBC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd. in Civil Appeal No. 9405 of 2017, wherein the Supreme Court clarified the scope of pre-existing disputes in paragraph 40 which reads as follows: It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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