2019 (12) TMI 1355 - Tri - Insolvency and Bankruptcy

Tribunal dismisses CIRP petition citing pre-existing disputes. Operational Creditor directed to civil court for resolution.

The tribunal rejected the petition to initiate Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code (IBC) ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - existence of debt and dispute or not - whether debt and default in question, is established, without there being any dispute raised by the Respondent? - HELD THAT:- The Petitioner issued said statutory Demand Notice only on 08.10.2018, and the instant Company Petition was filed on 09.07.2019, even though the Demand Notice allowed only 10 days from the date of receipt of the copy of the Order either to settle the issue or bring to notice any notice of dispute. Therefore, the Petitioner failed to explain the delay in approaching the Adjudicating Authority, as the due date was only 30.08.2016. The only explanation given by the Petitioner is one Gmail stated to have sent from iPhone dated 17.08.2016 from Vikash Roy, wherein it is stated that they would definitely release the payments, once they receive the payments from their advertisers. However, there is no further corroboration about the alleged mail by the Petitioner and it did not refer as what is outstanding due and it is prior to impugned demand notice, and the subsequent correspondence and Police are serious pre-existing dispute between the parties for the services rendered. It is a settled position of law that the provisions of the Code can be invoked where fundamental issues like debt, default, are not in dispute as it is summary proceedings in nature. Relevant issues to be examined in a Petition filed U/s 9 of the Code is whether there are debt and default in question and whether any pre-existing dispute is there or not - It is settled position of law that the provisions of Code cannot be invoked for recovery of outstanding alleged amount. The Petitioner has failed to make out any case that the debt and default in question is not in dispute, so as to initiate CIRP against the Corporate Debtor as prayed for - Petition dismissed. Issues Involved:1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016.2. Existence of pre-existing disputes between the parties.3. Validity of the demand notice and the response thereto.4. Allegations of fraudulent activity and defective services.5. Jurisdiction and appropriateness of invoking IBC for debt recovery.Detailed Analysis:1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016:The petition was filed by the Operational Creditor seeking to initiate CIRP against the Corporate Debtor for defaulting on a payment of Rs. 1,52,51,034/- along with interest at 18% p.a. The Operational Creditor issued a demand notice on 8th October 2018, which was received by the Corporate Debtor on 10th October 2018. The Corporate Debtor responded with a reply dated 15th November 2018, which the Operational Creditor claimed was not within the stipulated period.2. Existence of Pre-existing Disputes Between the Parties:The Corporate Debtor argued that there were pre-existing disputes regarding the debt claimed by the Operational Creditor. The disputes included allegations of fraudulent clicks and defective services provided by the Operational Creditor. The Corporate Debtor had communicated these disputes to the Operational Creditor through various correspondences and had also filed a police complaint against the Operational Creditor for fraudulent activities.3. Validity of the Demand Notice and the Response Thereto:The Corporate Debtor contended that the demand notice issued by the Operational Creditor did not consider the pre-existing disputes. The Corporate Debtor had responded to the demand notice through letters dated 24th October 2018 and 31st October 2018, which were returned undelivered. The Corporate Debtor then forwarded these replies to the Operational Creditor’s advocate, which were duly received.4. Allegations of Fraudulent Activity and Defective Services:The Corporate Debtor alleged that the Operational Creditor had engaged in fraudulent activities by generating fake clicks to inflate the invoices. The Corporate Debtor withheld payments for the months of June and July 2016 based on complaints from its clients about fraudulent clicks. The Corporate Debtor provided evidence of these fraudulent activities and argued that the payments claimed by the Operational Creditor were not due as they were based on fraudulent actions.5. Jurisdiction and Appropriateness of Invoking IBC for Debt Recovery:The tribunal emphasized that the IBC is not intended to be a substitute for a recovery forum. The existence of undisputed debt is a sine qua non for initiating CIRP. The tribunal referred to various judgments, including Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited, to highlight that the IBC should not be used for debt recovery when there are pre-existing disputes.Conclusion:The tribunal concluded that there were several pre-existing disputes between the parties regarding the alleged claims. The tribunal found that the Operational Creditor had filed the petition with the intention of recovering the disputed amount, which is not the purpose of the IBC. The tribunal held that the issues raised required detailed examination by a competent civil court and could not be resolved through the summary proceedings of the IBC. Consequently, the petition was rejected, but the Operational Creditor was allowed to seek other legal remedies.Order:C.P.(IB) No. 277/BB/2019 was rejected. The tribunal clarified that this order would not prevent the Operational Creditor from invoking any other remedy available under the law to address its grievances. No order as to costs was made.