2019 (10) TMI 1242 - Tri - Insolvency and Bankruptcy

Operational Creditor's Petition Admitted: Corporate Debtor Faces Insolvency Proceedings

The petition filed by the Operational Creditor under Section 9 of the Insolvency and Bankruptcy Code was admitted by the Tribunal against the Corporate ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment - existence of any dispute over the debt or not - Section 9 of Insolvency and Bankruptcy Code, 2016, R/w Rule 6 of Insolvency & Bankruptcy (Application to the Adjudicating Authority) Rules, 2016 - HELD THAT:- The Corporate Debtor did not raise any dispute with regard to the matter filed before MSMEFC. Counsel contended that the Operational Creditor uploaded the Application under Section 18(1) of MSME Act 2006 on 02.02.2018 and no notice was served on the Corporate Debtor and it was withdrawn. Therefore, it doesn't amount to pending proceedings. It is true the Operational Creditor informed the Tribunal by filing a memo about withdrawal of application filed under Section 18 (I) of MSME Act and no proceedings were continued under the said Act. It cannot be said that there was a dispute pending. The Application filed by the Operational Creditor before MSMEFC was assigned temporary number and no notice was ordered by MSMEFC to the Corporate Debtor and 25. before taking further proceedings, the Application was withdrawn. For the said reason, the Corporate Debtor did not take this objection either in the reply or the counter because no notice was served by the MSMEFC on the Corporate Debtor. So, proceedings never stared against the Corporate Debtor before the MSMEFC. Corporate Debtor cannot take any advantage to contend dispute pending on the ground that application was filed before the MSMEFC under Section 18(1) of the MSME Act. So this objection cannot be a ground for rejecting the Petition. The objection cannot be sustained under the law. Therefore, the Operational Creditor is able to establish that Corporate Debtor committed default of operational debt and Petition is liable to be admitted. Application admitted - moratorium declared. Issues Involved:1. Default in repayment by Corporate Debtor.2. Quality of goods supplied and alleged defects.3. Existence of a pre-existing dispute.4. Invocation of arbitration clause.5. Proceedings under MSME Act.6. Appointment of Interim Resolution Professional and declaration of moratorium.Issue-wise Detailed Analysis:1. Default in repayment by Corporate Debtor:The petition was filed by the Operational Creditor (OC) under Section 9 of the Insolvency and Bankruptcy Code, 2016, seeking the initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor (CD) for defaulting on a sum of Rs. 1,84,84,210/-. The OC supplied materials to the CD, which raised invoices and confirmed the delivery. Despite partial payments, the balance amount remained unpaid. The OC issued a demand notice, which the CD failed to comply with.2. Quality of goods supplied and alleged defects:The CD contended that the materials supplied by the OC were of poor quality, leading to returns by its clients. The CD raised debit notes for the defective goods and claimed a loss of Rs. 1,38,17,420/-. The OC, however, argued that the CD did not raise any dispute about the quality of goods within the stipulated period and that the invoices mentioned in the demand notice did not include the disputed purchase orders.3. Existence of a pre-existing dispute:The Tribunal observed that the CD raised disputes regarding defective goods only after the demand notice was issued. The purchase orders referred to by the CD in its reply were not part of the demand notice. Hence, there was no pre-existing dispute concerning the purchase orders mentioned in the demand notice. The Tribunal concluded that the CD's contentions were not sufficient to establish a pre-existing dispute.4. Invocation of arbitration clause:The CD argued that the OC should have invoked the arbitration clause for resolving disputes. However, the Tribunal noted that there was no dispute about the supply of goods before the issuance of the demand notice. The Tribunal held that the arbitration clause could not be invoked as there was no pre-existing dispute.5. Proceedings under MSME Act:The CD contended that the OC had approached the Micro Small Enterprise Facilitation Council (MSEFC) under the MSME Act, which constituted a dispute. However, the Tribunal found that the OC had withdrawn the application before any action was initiated. Since no proceedings were continued under the MSME Act, it could not be considered a pending dispute.6. Appointment of Interim Resolution Professional and declaration of moratorium:The Tribunal admitted the petition under Section 9 of the IBC, 2016, and declared a moratorium as per Section 14 of the Code. The Tribunal appointed an Interim Resolution Professional (IRP) from the panel recommended by the Insolvency and Bankruptcy Board of India (IBBI). The IRP was directed to submit the necessary documentation and the petitioner was instructed to pay Rs. 2,00,000/- to the IRP for expenses.Result:The petition was admitted, and the Tribunal declared a moratorium, prohibiting suits or proceedings against the CD, transferring or disposing of assets, and recovering property. The IRP was appointed to carry out the functions under the Insolvency & Bankruptcy Code. The public announcement of the Corporate Insolvency Resolution Process was to be made immediately.