2017 (7) TMI 1 - AT - Insolvency and Bankruptcy

Appellate Tribunal Confirms Rejection of Applications Under Insolvency Code Section 9

The Appellate Tribunal upheld the Adjudicating Authority's decision to reject applications under Section 9 of the Insolvency and Bankruptcy Code. The ... Corporate Insolvency Resolution Process - “dispute” and “existence of dispute” - Held that:- In the present case the Respondent - Corporate Debtor much prior to issuance of notice under Section 8 of 'I & B code', raised a dispute relating to quality of service/ maintenance pursuant to notice under Section 433(e) and 434 (1)(a) of the Companies Act 1956 to the notice of the 'Operational Creditor'. In that view of the matter, it can be safely being stated that there is 'existence of dispute' about the claim of debt. Objection raised by Respondent - 'Corporate Debtor', not raised for the first time while replying to the notice issued by 'Operational Creditor' under Section 8 of the 'I & B code'. The objection cannot be called to be mere objection raising a dispute for the sake of 'dispute' and/or unrelated to Clause (a) or (b) or (c) of sub-section (6) of Section 5 of 'I & B code'. For the said reason if the Adjudicating Authority has refused to entertain the application under Section 9 of 'I & B code, no ground is made out to interfere with such orders. Issues Involved:1. Whether the applications under Section 9 of the Insolvency and Bankruptcy Code, 2016 (I & B Code) were rightly rejected by the Adjudicating Authority.2. Interpretation of the term 'dispute' under Section 5(6) and Section 8(2) of the I & B Code.3. Whether the existence of a dispute was adequately demonstrated by the Corporate Debtors.Issue-wise Detailed Analysis:1. Rejection of Applications under Section 9 of I & B Code:The appellant, Philips India Limited, filed two applications under Section 9 of the I & B Code against two respondents, Goodwill Hospital and Research Centre Limited and Karma Healthcare Private Limited, for initiating Corporate Insolvency Resolution Process. The Adjudicating Authority rejected these applications, observing that the remedy for the appellant lies elsewhere and not under the provisions of the I & B Code. The Authority noted that the work orders were primarily related to maintenance services, and there was no certified document from the Corporate Debtors confirming the satisfactory completion of work as per the agreement standards.2. Interpretation of 'Dispute' under Section 5(6) and Section 8(2) of the I & B Code:The Adjudicating Authority and the Appellate Tribunal discussed the definition of 'dispute' under Section 5(6) of the I & B Code, which includes a suit or arbitration proceedings relating to the existence of the amount of debt, the quality of goods or services, or the breach of a representation or warranty. The Tribunal emphasized that the term 'dispute' is not limited to pending suits or arbitration but includes any disagreement or argument that brings the existence of debt or default into question. The Tribunal referred to the judgment in 'Kirusa Software (P) Limited Vs. Mobilox Innovations Pvt. Ltd.' to support the broader interpretation of 'dispute.'3. Existence of Dispute Demonstrated by Corporate Debtors:The Corporate Debtors had raised disputes concerning the quality of services provided by the Operational Creditor before the issuance of the notice under Section 8 of the I & B Code. The Adjudicating Authority observed that the disputes were communicated in response to notices under Section 433(e) and 434(1)(a) of the Companies Act, 2013, indicating dissatisfaction with the maintenance services and financial losses due to the Operational Creditor's failure to meet contractual obligations. The Tribunal concluded that these disputes were genuine and not raised merely to stall the insolvency process. The objections were not new and were related to the quality of services as per Clause (a), (b), or (c) of sub-section (6) of Section 5 of the I & B Code.Conclusion:The Appellate Tribunal found no merit in the appeals and upheld the Adjudicating Authority's decision to reject the applications under Section 9 of the I & B Code. The existence of a dispute was adequately demonstrated, and the broader interpretation of 'dispute' under the I & B Code was affirmed. The appeals were dismissed without any order as to costs.