2018 (6) TMI 1697 - AT - Insolvency and Bankruptcy

Appeal allowed due to pre-existing dispute under Section 9. Corporate Debtor's right to dispute debt upheld.

The appeal was filed against the order admitting the application under Section 9 of the Insolvency and Bankruptcy Code. The Corporate Debtor had a ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - existence of dispute or not - HELD THAT:- The fact that the Corporate Debtor agreed to pay tentative amount of ₹ 1 crore, but finally settled for ₹ 75 Lakhs plus GST show that there some discussion was going on with regard to amount actually payable to the 1st Respondent, therefore, it can be accepted that there was an existence of dispute about the payment of debt. Application not maintainable and is dismissed. Issues:1. Admission of application under Section 9 of the Insolvency and Bankruptcy Code, 2016.2. Existence of dispute prior to the demand notice under Section 8(1).3. Settlement of dispute regarding the quantum of payment.4. Interpretation of provisions of Sections 7 and 9 of the I&B Code.5. Right of the Corporate Debtor to dispute the debt and quantum of payment.6. Consideration of emails exchanged between the parties as evidence of dispute.7. Setting aside the order of the Adjudicating Authority and passing directions.Analysis:1. The appeal was filed by a Shareholder and Director of the Corporate Debtor against the order admitting the application under Section 9 of the I&B Code. The Adjudicating Authority had passed an order of moratorium based on the application by the Operational Creditor.2. The Appellant argued that there was a pre-existing dispute before the demand notice under Section 8(1) was issued. The Corporate Debtor had replied to the demand notice, indicating the existence of a dispute.3. Both parties had differing views on the settlement of the dispute regarding the quantum of payment. The Corporate Debtor claimed that an agreed amount had been paid, while the Operational Creditor contended that the full brokerage fee had not been settled.4. The judgment referred to the Supreme Court's decision in Innoventive Industries v. ICIC Bank, outlining the procedures under Sections 7 and 9 of the I&B Code. It emphasized the importance of ascertaining the existence of a default and the right of the Corporate Debtor to dispute the debt.5. It was highlighted that in a petition under Section 9, the Corporate Debtor has the right to dispute not only the quality of goods or services but also the debt itself, including the quantum of payment. If the debt is disputed, the question of default does not arise.6. The emails exchanged between the parties were considered as evidence of the ongoing negotiation and dispute regarding the payment. The correspondence indicated that discussions had taken place on the amount payable, supporting the existence of a dispute.7. Ultimately, the order of the Adjudicating Authority was set aside, and directions were issued to dismiss the application under Section 9, release the Corporate Debtor from the moratorium, and allow it to function independently. The Corporate Debtor was also directed to pay certain fees and costs, with provisions for further action if the payment was not made.In conclusion, the judgment delved into the complexities of the dispute, the rights of the Corporate Debtor, and the procedural aspects under the I&B Code, ultimately leading to the setting aside of the initial order and providing detailed directions for the resolution of the matter.