2020 (3) TMI 1262 - Tri - Insolvency and Bankruptcy

Application for Corporate Insolvency Denied due to Pre-existing Disputes

The tribunal dismissed the application for the initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - pre-existing dispute or not - HELD THAT:- It is the settled principle of Law that if a notice of pre-existing dispute between the parties has been received by the Operational Creditor or there is record of disputes in the information utility the insolvency code cannot be applied. Thus, the applicant has not approached with clean hand rather suppressed the existence of pending disputes. Since the Respondent/Corporate Debtor by filing the reply to the demand notice dated 17th May, 2019 stated that there are existing disputes with regard to the outstanding payment and the same has been intimated by the management, therefore, we would like to consider this aspect at first, where dispute raised by the Corporate Debtor in reply to demand notice issued under Section (81) is a dispute in terms of Section 8(2)(a) or not? The objection was raised by Corporate Debtor on the invoice/bill submitted by the applicant prior to the date of issuance of the demand notice. We further find since on 6th June 2019. show cause notice under Section 6 of the Payment of Wages (amended) Act. 2017 was sent in which the correspondence made through the various email. Further, vide email dated 6th June. 2019, the Corporate Debtor has also informed the Operational Creditor that due to non-payment of salary, the staffs deputed by the Operational Creditor refused to join their service on 6th June, 2019 and they have gathered in front of the hospital near gate No. 1. Whether this dispute has been raised within the period prescribed under Section 8(2) of the IBC, 2016 or not? - HELD THAT:- Before receiving the demand notice, the Corporate Debtor has raised the disputes and the email exchanged between the two, which are prior to the issuance of the demand notice shows that there was a dispute regarding the amount claimed by the Operational Creditor and it has also come that the proper staff were not being deputed/posted by the Operational Creditor as per the agreement - there are no option but to hold that the Corporate Debtor has raised the dispute regarding the service and also regarding the payment made by the Operational Creditor to their employees/staff. It cannot be said that since there is a labour dispute and the matter is pending before the Labour Commissioner regarding the payment of the amount, therefore, that does not come under the purview of the dispute as under Section 8 and 9 of the IBC, 2016, rather, it can be safely said that the Corporate Debtor has raised the dispute, which is corroborated by the email exchanged between the two. prior to the delivery of the demand notice. Since there is existence of dispute, therefore, in order to admit an application under Section 9. this Adjudicating Authority is required to consider the ground mentioned at Section 9(5)(i) of the IBC, 2016, and if these conditions are not fulfilled then this Adjudicating Authority have no option but to reject the application under Section 9(5)(ii) - in the case in hand, notice of dispute has been received by the Operational Creditor and on the basis of documents enclosed with the application and reply, it is found that there is existence of dispute. The present application is dismissed. Issues Involved:1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016.2. Pre-existing disputes between the parties.3. Compliance with Labour Laws.4. Payment of wages and statutory dues.5. Validity of demand notice and response period under Section 8(2) of IBC, 2016.Issue-wise Detailed Analysis:1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016:The Operational Creditor, 'Pioneer Engineered Facility Management Services Private Limited', filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016, for the initiation of CIRP against the Corporate Debtor, 'Medeor Hospital Limited'. The petition was based on the alleged default in payment of Rs. 1,35,54,011/- for services provided under agreements dated 01.08.2016 and 12.10.2016. The Operational Creditor claimed that the debt became due 30 days after the issuance of the invoices.2. Pre-existing disputes between the parties:The Corporate Debtor contended that there were pre-existing disputes regarding the amounts claimed by the Operational Creditor. These disputes were communicated through various emails and correspondences, highlighting issues such as non-compliance with Labour Laws and deficiencies in the services provided. The tribunal examined the email exchanges and found that the Corporate Debtor had raised disputes regarding the invoices for the months of September 2018 to March 2019 before the issuance of the demand notice on 17th May 2019.3. Compliance with Labour Laws:The Corporate Debtor argued that the Operational Creditor failed to comply with statutory provisions related to Labour Laws, which was a condition precedent for the clearance of invoices. The agreements required the Operational Creditor to furnish documents demonstrating compliance with Labour Laws, which the Corporate Debtor claimed were not provided despite repeated requests. The tribunal noted that the Corporate Debtor had communicated these compliance issues through various emails.4. Payment of wages and statutory dues:The Corporate Debtor asserted that due to the Operational Creditor's failure to pay wages in compliance with the Minimum Wages Act, the Corporate Debtor had to directly disburse Rs. 18,00,959/- towards the employees' salaries. Additionally, the Corporate Debtor deducted amounts from the invoices raised by the Operational Creditor due to non-compliance with statutory provisions. The tribunal acknowledged that the Corporate Debtor had made payments directly to the employees under the direction of the Labour Commissioner.5. Validity of demand notice and response period under Section 8(2) of IBC, 2016:The tribunal considered whether the Corporate Debtor had raised the existence of a dispute within the period prescribed under Section 8(2) of IBC, 2016. The demand notice was issued on 17th May 2019, but the Operational Creditor failed to provide evidence of the exact date of delivery. The tribunal held that the onus was on the Operational Creditor to prove the delivery date and, in the absence of such proof, concluded that the Corporate Debtor's response was within the prescribed period.Conclusion:The tribunal found that there were pre-existing disputes between the parties, communicated through various emails before the issuance of the demand notice. The disputes related to non-compliance with Labour Laws, deficiencies in services, and payment of wages. Based on the evidence and the principles laid out in relevant Supreme Court decisions, the tribunal held that the application under Section 9 of the IBC, 2016, could not be admitted due to the existence of these disputes. Consequently, the application was dismissed.