2017 (6) TMI 738 - Tri - Insolvency and Bankruptcy

Tribunal rejects petition due to pre-existing dispute over debt. Parties to bear costs.

Gujarat State Cooperative Cotton Federation Ltd. Versus STI India Ltd.

The tribunal rejected the petition under Section 9(5)(ii)(d) of the Insolvency and Bankruptcy Code due to a pre-existing dispute regarding the claimed ... Petition under Section 9 of the Insolvency and Bankruptcy Code - Held that:- A dispute which is covered by sub-section (6) of Section 5 of the Code has been raised by the Respondent even before the Demand Notice was issued, and notice of dispute has been given by the Respondent to the Petitioner. Sub-section (5) of Section 8 of the Code says that Adjudicating Authority shall by an order admit the Application if no notice of dispute is received by the Operational Creditor or there is no record of dispute in the information utility. This Adjudicating Authority can only admit the Application filed under sub-section (2) of Section 9 when there is no dispute regarding the amount claimed in the Demand Notice. This Adjudicating Authority has no jurisdiction to decide whether the claim of the Petitioner is proved or not. It is for the other Forums to decide the said aspect. In fact, a Suit has already been filed by the GUJCOT in the year 2003 for the amount claimed in the Demand Notice and it is still pending. The provisions that govern the admission of a Petition for triggering the Insolvency Resolution Process by an Operational Creditor are contemplated in Section 9. Therefore, what is stated in Section 9 cannot be ignored on the ground that NCLT is given jurisdiction to decide the claims against the Corporate Debtor. Therefore, there is no merit in this argument of the learned Counsel for the Petitioner. The jurisdiction conferred on the Tribunal can be exercised only if the Petition filed by the Petitioner is admitted. There is an express provision in Section 9(5) of the Code, which says that the Adjudicating Authority shall reject the Application in case of notice of dispute received by the Operational Creditor. Therefore, it cannot be said that Section 280 of the Companies Act, 2013, which deals with jurisdiction of the Tribunal, cannot override the effect of sub-section (5) of Section 9 in respect of admission of a Petition filed by an Operational Creditor. In view of the above discussion, this Petition is liable to be rejected and it is rejected under Section 9(5)(ii)(d) of the Code. Issues Involved:1. Whether GUJCOT is an Operational Creditor of STI India.2. Whether there is a pre-existing dispute regarding the claimed debt.3. Jurisdiction of the National Company Law Tribunal (NCLT) in the context of insolvency resolution.Issue-wise Detailed Analysis:1. Whether GUJCOT is an Operational Creditor of STI India:The petitioner, GUJCOT, filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016, claiming an outstanding principal amount of Rs. 42.25 Crores and interest of Rs. 61.59 Crores from the Corporate Debtor, STI India. GUJCOT asserted that it supplied cotton bales to STI India, resulting in the claimed debt. However, STI India contended that the liability was transferred to STI Finance with GUJCOT's approval, and thus, GUJCOT is not an Operational Creditor of STI India. This contention was supported by a letter dated 1st March 2005 from GUJCOT's Managing Director. The tribunal noted that the proceedings before the Board of Industrial and Financial Reconstruction (BIFR) and the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) were inconclusive regarding whether the liability was of STI India or STI Finance.2. Whether there is a pre-existing dispute regarding the claimed debt:STI India raised several points indicating a pre-existing dispute:- The liability of Rs. 42.25 Crores was transferred to STI Finance.- GUJCOT had agreed to waive the interest and penalty on the principal amount, as evidenced by a letter dated 29th January 2005.- The disagreement was previously adjudicated by the BIFR.- A suit (Summary Lavad Case No. 214 of 2003) was pending before the Board of Nominees, Ahmedabad, concerning the claimed amount.The tribunal referred to Section 5(6) of the Code, which defines 'dispute' and noted that the existence of a suit or arbitration proceedings relating to the debt constitutes a dispute. The tribunal found that a dispute regarding the debt existed before the issuance of the Demand Notice by GUJCOT, thus fulfilling the criteria under Section 5(6) of the Code.3. Jurisdiction of the National Company Law Tribunal (NCLT) in the context of insolvency resolution:The tribunal addressed the argument that under Section 60 of the Code, the NCLT has jurisdiction over insolvency matters of corporate debtors and their personal guarantors. However, it clarified that the jurisdiction to decide claims against the Corporate Debtor arises only after the admission of the insolvency petition. Section 9(5) of the Code mandates the rejection of the petition if there is a notice of dispute. The tribunal emphasized that the provisions of Section 9 must be adhered to, and the jurisdiction conferred by Section 60 or Section 280 of the Companies Act, 2013, does not override the requirement to reject a petition when a dispute exists.Conclusion:The tribunal concluded that the petition must be rejected under Section 9(5)(ii)(d) of the Code due to the pre-existing dispute regarding the claimed debt. The tribunal directed both parties to bear their own costs and clarified that the findings in the order should not be construed as a definitive opinion on the claim of the petitioner. The order does not prevent the petitioner from pursuing its rights in other forums, including the pending suit.