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TMI Blog2025 (3) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... neously on the ground of pre-existing disputes in the instant case. Brief facts of the case 2. The Appellant, a senior advocate, filed an Application for the initiation of the CIRP against State Trading Corporation of India Ltd., citing a default in the payment of professional fees amounting to Rs 6,26,90,985/-. This amount comprised a principal sum of Rs 3,93,55,110/- and an interest component of Rs 2,33,35,875/-. However, the Adjudicating Authority dismissed the Application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016. Submissions of the Appellant/Operational creditor (OC) - Debarata Ray Choudhuri 3. The Operational Creditor asserts that, starting in 2006, the Respondent engaged his services for recovering various amounts and handling multiple suits and legal proceedings arising from various contracts. The Respondent entrusted him with high-stakes and significant matters, following which the Appellant submitted a schedule of fees. The Respondent issued multiple schedules of fees on the following dates: 07.06.2006, 11.08.2006, 05.06.2008, 17.09.2010, 20.09.2010, and 12.12.2014. 4. The Appellant asserts that all submitted bills were prepared in accordance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent, remains payable to the Appellant. 9. Due to the Respondent's inaction, the Appellant (Operational Creditor) issued a Form 3 Demand Notice to the Corporate Debtor on 08.01.2019, seeking recovery of the outstanding amount. However, this Notice contained several calculation errors, rendering it redundant, and the Respondent responded to it on 18.01.2019. 10. To rectify these errors, the Appellant issued a fresh Demand Notice under Form 3, pursuant to Section 8 of the IBC, on 26.07.2019, claiming dues amounting to Rs 3,93,55,110/-. The Respondent duly replied to this Demand Notice via a letter dated 08.08.2019. The Respondent in the said Reply has categorically admitted that: "It is surprising that your Client has alleged that payments were not made to your Client from the year 2007 onwards by STC, but your Client has still continued to appear and represent STC before different legal forums upto the year 2018. It is also astonishing that your Chent never raised any such grievance over the past 10 years regarding non-payment of Bills, but now, your Client has suddenly raised the alleged demands, after STC chose to discontinue taking legal services from your Client so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls should be paid within one month, including directing the government and its departments to ensure timely payments so that advocates are not subjected to undue hardship and forced to file petitions. Writ Petition (C) No. 6146/2022 was filed before the Hon'ble High Court of Delhi while the Appellant's Application under Section 9 of the IBC was pending before the NCLT. The reliefs sought in these proceedings were distinct: the Section 9 IBC Application sought insolvency resolution, whereas the Writ Petition challenged the Respondent's arbitrary refusal to process the Appellant's bills, despite being a government company. On 26.07.2024, the Adjudicating Authority dismissed the Section 9 IBC Application without considering the documents submitted by the Appellant, the admissions made by the Respondent, the Appellant's written submissions, or the compilation of judgments relied upon by the Appellant. 14. The Respondent was not making payments for all the Appellant's bills but instead provided ad hoc payments from time to time, citing financial and other difficulties while assuring that the remaining payments would be made soon. The Appellant filed the Petition solely based on unpaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lifying as a 'pre-existing dispute,' thereby justifying the dismissal of the Appellant's Application under Section 9 of the IBC at the threshold. 18. The Adjudicating Authority failed to recognise that the Demand Notice under Section 8 of the IBC was issued on 26.07.2019, and the Application under Section 9 was filed before the NCLT on 16.12.2019. Therefore, the pecuniary threshold applicable to the present case under Section 4 of the IBC is Rs 1,00,000/-. The Appellant rendered professional services amounting to Rs 4,84,70,481/- and submitted corresponding bills to the Respondent. Out of this amount, the Respondent paid Rs 91,15,371/-, which includes TDS of Rs 11,80,109/- and an RTGS transfer of Rs 79,35,262/-. Consequently, the outstanding amount payable by the Corporate Debtor to the Appellant stands at Rs 3,93,55,110/-. 19. The Respondent paid a sum of Rs 79,35,262/- to the Appellant and deposited TDS amounting to Rs 11,80,109/- with the Income Tax Department in the Appellant's name. Under Section 194J of the Income Tax Act, 1961, TDS is deducted at 10% on the amount paid or credited to the rightful beneficiary. This indicates that the Respondent acknowledged the Appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tandard of accountability, particularly regarding the timely payment of legal fees. There should be no distinction in the standards applied to private and government companies when it comes to fulfilling financial obligations. The serious lapse and deliberate avoidance of payment by the Respondent should not result in the Appellant being penalised simply for having represented a government company. 25. The Appellant respectfully requests that the present Appeal be allowed and that the Impugned Order dated 26.07.2024, passed by the Adjudicating Authority in Company Petition No. (IB) 242 (PB) 2020, be set aside. Submissions of the Respondent/Corporate Debtor - The State Trading Corporation of India Ltd.: 26. A senior advocate should not be permitted to file an Application under Section 9 of the IBC, read with Rule 6 of the Insolvency and Bankruptcy (Adjudicating Authority) Rules, 2016, against a client, as such a petition could push the client toward insolvency. Before being designated as a senior advocate, the Applicant/Petitioner practiced as an advocate, and in both capacities, it is his fundamental duty to safeguard the interests of his client. Allowing such proceedings to con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd bills dated between 11.12.2006 and 31.08.2015, was clearly time-barred. In support of this argument, the Respondent relies on the judgment of the Hon'ble Supreme Court in 'B.K. Educational Services Pvt Ltd vs Parag Gupta and Associates' (AIR 2018 SC 5601), particularly paragraph 27, which affirms that the Petition was barred by limitation. 31. For the invoices and bills covering the period from September 2016 to January 2018, the Respondent had raised a valid pre-existing dispute. In its Reply dated 18.01.2019, the Respondent specifically contested the accuracy of the bills and invoices relied upon by the Appellant. It was asserted that the Appellant had issued invoices arbitrarily, based on his own fee structure rather than adhering to the prescribed schedule of fees. Additionally, separate invoices were raised for group matters and batch matters, which was impermissible under the approved fee schedule. This schedule had been placed on record by the Respondent in its Written Submissions before the NCLT. Following the Respondent's Reply dated 18.01.2019, the Appellant withdrew the first Demand Notice issued on 08.01.2019 and, subsequently, issued a revised Demand Notice on 26.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithdrawn due to a calculation error. Thereafter, the Applicant issued a revised Demand Notice dated 26.07.2019 under Section 8 of the IBC, 2016, demanding payment of outstanding dues amounting to Rs 6,26,90,985.02/-. This amount comprised a principal sum of Rs 3,93,55,110/- and an interest component of Rs 2,33,35,875.02/-, calculated at a rate of 15% per annum and this is reflected in Part-IV of Form 5 giving particulars of the operational debt. 37. Before proceeding further to determine debt and default, we delve into the issue of pre-existing dispute between the Operational Creditor and the Corporate Debtor before issue of the Section 8(1) Notice, which is vehemently being argued by the Respondent and also upheld by the Adjudicating Authority while dismissing the Section 9 Petition. 38. The Respondent, in its Reply dated 18.01.2019, specifically challenged the accuracy of the invoices issued by the Appellant for the period from September 2016 to January 2018. It was contended that the invoices were prepared arbitrarily, based on the Appellant's own fee structure rather than the approved schedule of fees. Additionally, separate invoices were raised for group matters and batch ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd relying on established legal precedents, has concluded that the Corporate Debtor cannot be admitted into insolvency. In reaching this decision, the Adjudicating Authority has placed reliance on two significant judgments of the Hon'ble Supreme Court: Mobilox Innovations Private Limited vs Kirusa Software Private Limited (Civil Appeal No. 9405 Of 2017) passed on 21.09.2017 "We have also seen that one of the objects of the Code qua operational debts is to ensure that the amount of such debts, which is usually smaller than that of financial debts, does not enable operational creditors to put the corporate debtor into the insolvency resolution process prematurely or initiate the process for extraneous considerations. It is for this reason that it is enough that a dispute exists 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existed regarding the alleged outstanding amount claimed by the Applicant even before the issuance of the statutory Demand Notice and the filing of the present Application. These disputes specifically pertain to the invoices raised by the Applicant/Operational Creditor. A pre-existing dispute is apparent, as the invoices do not align with the agreed schedule of fees. Additionally, the discrepancies in these invoices remain unaddressed despite prior communications highlighting the inconsistencies. 45. We make it clear that we are not expressing any opinion on non-IBC issues of defamation raised by the Appellant and issues of ethics and morality raised by the Respondent, as they are not relevant to decide on the Appeal under the Code. 46. The issue relating to limitation has not been gone into as all the details of the bills has not been placed on record. Moreover, since pre-existing dispute has been clearly established in the facts of the case, we need not good into any further issue. Orders: 47. We concur with the finding of the Adjudicating Authority that there is a pre-existing dispute and Section 9 Application cannot be admitted in these conditions. Therefore, the Appeal is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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