2020 (1) TMI 1593 - Tri - Insolvency and Bankruptcy

Tribunal Rejects Corporate Insolvency Application Due to Pre-existing Dispute

K.B. POLYCHEM (INDIA) LIMITED Versus K.B. POLYCHEM (INDIA) LIMITED

The Tribunal dismissed the application for initiating Corporate Insolvency under section 9 of the Insolvency and Bankruptcy Code, 2016, due to the ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - existence of debt and dispute or not - HELD THAT:- Considering the documents on records and submissions of counsels, it manifests that the corporate debtor has raised a pre-existing dispute as stated in its reply by sending debit notes which were sent to the applicant much prior to issue of the Section 8 notice. A conclusion can be drawn that there is ‘Preexistence dispute’ which was raised by the corporate debtor, much prior to the notice served under section 8 of the Code - the claim of applicant is not proved beyond doubt and the applicant cannot be considered for admission - Application dismissed. Issues:1. Application filed under section 9 of Insolvency and Bankruptcy Code, 2016 for initiating Corporate Insolvency process.2. Dispute regarding outstanding dues and quality of goods raised by the Corporate Debtor.3. Interpretation of pre-existing dispute and its impact on the admission of the application.Analysis:1. The Applicant, a company engaged in manufacturing and trading, filed an application under section 9 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of Corporate Insolvency process against the Corporate Debtor, a company involved in manufacturing chemicals and printing ink. The Applicant claimed unpaid invoices totaling Rs 4,76,154 along with interest, stating that the Corporate Debtor failed to make payments within the agreed terms.2. The Corporate Debtor raised a dispute regarding the quality of goods received and issued debit notes prior to the Applicant's demand notice. The Applicant contended that the Corporate Debtor's dispute was an attempt to avoid payment, alleging malafide intentions in creating false documents to withhold legitimate dues. Despite the Applicant's demand notice and subsequent legal actions, the Corporate Debtor did not clear the outstanding dues, leading to the initiation of the insolvency process.3. The Tribunal considered the pre-existing dispute raised by the Corporate Debtor before the issuance of the Section 8 notice. Citing the Supreme Court's ruling in 'Mobilox Innovative Private Limited vs. Kirusa Software Private Limited,' the Tribunal emphasized the need to differentiate genuine disputes from spurious defenses. The presence of a pre-existing dispute, as evidenced by the Corporate Debtor's actions, led the Tribunal to conclude that the Applicant's claim was not established beyond doubt. Consequently, the application for admission under section 9 of the Code was rejected, and the case was dismissed based on the existence of a pre-existing dispute.In conclusion, the Tribunal's decision hinged on the recognition of a pre-existing dispute raised by the Corporate Debtor, which undermined the Applicant's claim for admission under the Insolvency and Bankruptcy Code, 2016. The judgment highlighted the importance of genuine disputes and the need for thorough investigation before admitting applications for insolvency proceedings, ultimately leading to the dismissal of the Applicant's claim in this case.