2019 (11) TMI 1381 - Tri - Insolvency and Bankruptcy

Tribunal admits petition, initiates CIRP for defaulting Corporate Debtor. Prohibits suits during moratorium.

The Tribunal found that the Corporate Debtor defaulted on the operational debt and that there was no pre-existing dispute. The petition was admitted, and ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - pre-existing dispute or not - HELD THAT:- The e-mails relied by the Corporate Debtor do not show that there was any preexisting dispute. In fact, Corporate Debtor made payments to the Operational Creditor in respect of certain invoices and if there is really deficiencies of services then how Corporate Debtor honoured some of the invoices. In other words, Corporate Debtor made payment to the Operational Creditor in respect of certain invoices. In fact, there was no letter to the Operational Creditor raising a dispute of deficiency of services. Even reply is given by the Corporate Debtor to the Demand Notice belatedly after expiry of 10 days. The Corporate Debtor raised dispute for the first time in reply notice as if there was deficiency of services in the reply. It cannot be held that there was a pre-existing dispute. The prior dispute must be pre-existing i.e. it must exist before receipt of demand notice or tax invoice. There is nothing on record to show that any dispute was raised before raising tax invoice. The Operational Creditor has established that Corporate Debtor committed default of Operational Debt and as such application is liable to be admitted. Petition admitted - moratorium declared. Issues Involved:1. Default in payment of operational debt.2. Validity and enforceability of the retainer fee agreement.3. Alleged deficiency in services provided by the Operational Creditor.4. Pre-existing dispute before the issuance of the demand notice.5. Appointment of Interim Resolution Professional (IRP) and initiation of Corporate Insolvency Resolution Process (CIRP).Issue-wise Detailed Analysis:1. Default in Payment of Operational Debt:The petition was filed by Concept Public Relations India Limited (Operational Creditor) against RDP Workstations Private Limited (Corporate Debtor) for defaulting on a payment of Rs. 7,02,400/- along with interest at 24% p.a. The Operational Creditor raised invoices for services rendered from April 2018 to October 2018. The Corporate Debtor failed to make payments despite repeated demands, leading to the issuance of a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016.2. Validity and Enforceability of the Retainer Fee Agreement:The parties entered into a Public Relations Agency Contract on 01.08.2017, wherein the Operational Creditor was to manage strategic communication for the Corporate Debtor on a monthly retainer fee of Rs. 85,000/- plus GST. The Tribunal observed that the contract explicitly mentioned the retainer fee, and the Corporate Debtor had initially made payments as per the contract. The Operational Creditor provided a ledger statement and invoices supporting their claim for the outstanding amount.3. Alleged Deficiency in Services Provided by the Operational Creditor:The Corporate Debtor contended that the Operational Creditor failed to deliver the agreed services, citing a letter dated 12.07.2017, which mentioned 38 activities to be performed. However, the Tribunal noted that this letter was a proposal and not part of the final contract dated 01.08.2017. The contract did not link the retainer fee to specific deliverables, and the Corporate Debtor did not raise any disputes regarding service deficiencies during the contract period.4. Pre-existing Dispute Before the Issuance of the Demand Notice:The Corporate Debtor argued that there was a pre-existing dispute regarding the quality of services. However, the Tribunal found that the Corporate Debtor raised these disputes for the first time in their reply to the demand notice, which was beyond the statutory period of 10 days. The Tribunal referenced the National Company Law Appellate Tribunal's decision in Ahluwalia Contracts (India) Limited vs. Raheja Developers Limited, emphasizing that disputes must exist before the receipt of the demand notice or invoice. The Tribunal concluded that there was no pre-existing dispute before the demand notice was issued.5. Appointment of Interim Resolution Professional (IRP) and Initiation of Corporate Insolvency Resolution Process (CIRP):The Tribunal admitted the petition under Section 9 of the Insolvency and Bankruptcy Code, 2016, and declared a moratorium as per Section 14 of the Code. The Tribunal appointed Mr. Nukala Sreedhar as the Interim Resolution Professional (IRP) and directed the Petitioner to pay Rs. 1,00,000/- to the IRP for expenses. The order of moratorium would remain in effect until the completion of the CIRP or until the Tribunal approves a resolution plan or orders liquidation, whichever is earlier.Conclusion:The Tribunal found that the Corporate Debtor defaulted on the operational debt and that there was no pre-existing dispute. The petition was admitted, and the CIRP was initiated with the appointment of an IRP. The Tribunal's order included prohibitions on suits, asset transfers, and other actions against the Corporate Debtor during the moratorium period.