Tribunal Grants Liberty for Pending Arbitration, No CIRP Initiation

The Tribunal disposed of the petition, granting liberty to the parties to prosecute the pending arbitration application and to take appropriate legal action post-arbitration. The Tribunal refrained from initiating CIRP due to the economic crisis caused by the pandemic and emphasized the need for the existence of undisputed debt for initiating CIRP. The parties were directed to proceed with the arbitration application and take subsequent legal actions accordingly, with no order as to costs.

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Issues Involved:
1. Default in payment by the corporate debtor.
2. Validity of the demand notice.
3. Existence of a pre-existing dispute.
4. Applicability of arbitration proceedings.
5. Determination of operational debt and initiation of CIRP.

Detailed Analysis:

1. Default in Payment by the Corporate Debtor:
The petitioner, M/s. Aparna Enterprises Ltd., sought to initiate CIRP against the respondent, M/s. SJR Prime Corporation P. Ltd., for a default amounting to Rs. 8,44,49,943, which includes the principal amount and interest at 24% per annum. The petitioner supplied building materials to the respondent, who defaulted on payments amounting to Rs. 6,94,84,388 as of the demand notice issued on November 18, 2019.

2. Validity of the Demand Notice:
The respondent contended that the demand notice issued was defective as it did not attach proof showing the amount owed. The demand notice was issued in forms 4 and 5, which require a copy of the invoice. The petitioner argued that the invoices were not enclosed due to their bulkiness but were acknowledged by the corporate debtor. The Tribunal noted that the demand notice dated November 18, 2019, was received by the respondent on December 6, 2019, and replied to on December 9, 2019.

3. Existence of a Pre-existing Dispute:
The respondent claimed the existence of a pre-existing dispute, citing pending proceedings before the XXVIII Additional City Civil Sessions Judge, Mayo Hall Unit, Mayo Hall, where the respondent had invoked the arbitration clause in the purchase order. The respondent alleged issues related to defects, quality, and short supplies, and claimed a counter amount of Rs. 16,22,50,080. The petitioner argued that no arbitration proceedings had commenced and that the application under section 9 of the Arbitration and Conciliation Act, 1996, did not constitute the commencement of arbitration.

4. Applicability of Arbitration Proceedings:
The Tribunal noted that the respondent had filed an arbitration application seeking interim relief and that the petitioner had not agreed to any arbitration reference in any documents. The Tribunal emphasized that proceedings under section 9 of the Arbitration and Conciliation Act, 1996, do not amount to the commencement of arbitration, which only begins under section 21 of the Act.

5. Determination of Operational Debt and Initiation of CIRP:
The Tribunal referred to the Supreme Court's judgments in Mobilox Innovations P. Ltd. v. Kirusa Software P. Ltd. and Transmission Corporation of Andhra Pradesh Ltd. v. Equipment Conductors and Cables Ltd., highlighting that the IBC is not a substitute for a recovery forum and that the existence of undisputed debt is essential for initiating CIRP. The Tribunal found that the demand notice was issued before the expiry of the 10-day period for the respondent to respond, and the petition was filed with the intention to recover a disputed outstanding amount.

Conclusion:
The Tribunal disposed of the petition, granting liberty to the parties to prosecute the pending arbitration application and to take appropriate legal action post-arbitration. The Tribunal also acknowledged the economic crisis due to the pandemic and refrained from initiating CIRP on unjustified grounds.

Directions:
1. The parties are at liberty to prosecute the arbitration application pending before the XXVIII Additional City Civil Sessions Judge, Mayo Hall Unit, Mayo Hall, Bengaluru.
2. The petitioner is granted liberty to take appropriate legal action subject to the result of the arbitration case.
3. No order as to costs.

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