2017 (11) TMI 100 - Tri - Insolvency and Bankruptcy

Application for Corporate Insolvency Rejected due to Genuine Dispute

The tribunal rejected the application for initiating the Corporate Insolvency Resolution Process under Section 9 of the Insolvency and Bankruptcy Code, ... Corporate Insolvency Resolution Process - whether there is existence of a dispute between the parties - Held that:- The respondent had earlier raised dispute and brought to the notice of applicant through various correspondences revealing existence of dispute between the parties much before the receipt of the demand notice issued in the present case under section 8 of the Code. Secondly, the respondent has claimed that the company's property lying with the applicant has not been returned despite repeated demands. In this respect the applicant has admitted that company's two 7 to 8 years old vehicles were disposed of by him under justifiable reason and was duly appropriated. In that view of the matter the contention of the respondent regarding dispute and confusion on the amount of debt due, cannot be totally overlooked. Besides, there had been a bargain between the parties. The applicant has admitted in his application that there was a settlement between the parties and it was inter alia agreed that the balance amount shall be payable by respondent company to the applicant on receipt of the award of the pending International arbitration. Needless, to say that adequacy of existence of dispute is not to be seen. Respondent has placed sufficient particulars in support of existence of dispute. In such scenario it can only be said that the claims and debts in question are not free from dispute. In the aforesaid factual background in our opinion the dispute raised by the corporate debtor qualify as a dispute as defined under sub-section (6) of Section 5 of the Code. For the reasons stated above this application is rejected. We make it clear that any observations made in this order shall not be construed as an expression of opinion on the merit of the controversy and the right of the Applicants before any other forum shall not be prejudiced on account of dismissal of instant application. Issues Involved:1. Initiation of Corporate Insolvency Resolution Process under Section 9 of the Insolvency and Bankruptcy Code, 2016.2. Existence of operational debt and its dispute.3. Allegations of misappropriation of company property by the applicant.4. Full and final settlement claim by the respondent.5. Legal interpretation of 'dispute' under the Insolvency and Bankruptcy Code.Detailed Analysis:1. Initiation of Corporate Insolvency Resolution Process under Section 9 of the Insolvency and Bankruptcy Code, 2016:The applicant filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, seeking the initiation of the Corporate Insolvency Resolution Process (CIRP) against the respondent corporate debtor. The application was based on the claim of unpaid salary dues, which the applicant argued constituted an operational debt exceeding Rupees one lac, thus satisfying Section 4 of the Code.2. Existence of operational debt and its dispute:The applicant claimed unpaid salary dues as operational debt. The respondent disputed this claim, arguing that USD 33,000 had already been paid as full and final settlement for the applicant's salary dues. The tribunal noted that the respondent had consistently disputed the applicant's entitlement to further payments through various communications, including a reply to a legal notice and objections filed in court. The tribunal emphasized that the core issue was whether a dispute existed regarding the operational debt.3. Allegations of misappropriation of company property by the applicant:The respondent alleged that the applicant had illegally disposed of two company vehicles and misappropriated the funds. The applicant admitted to selling the vehicles but claimed it was done for justifiable reasons and the proceeds were appropriately used. The tribunal considered this allegation as part of the broader dispute between the parties.4. Full and final settlement claim by the respondent:The respondent maintained that the payment of USD 33,000 was in full and final settlement of the applicant's salary dues. The tribunal acknowledged this claim and noted that the applicant had admitted to a settlement agreement where the balance amount was contingent upon the outcome of an international arbitration award. This further supported the existence of a dispute.5. Legal interpretation of 'dispute' under the Insolvency and Bankruptcy Code:The tribunal referred to the definition of 'dispute' under Section 5(6) of the Code, which includes disputes related to the existence of debt, quality of goods or services, or breach of representation or warranty. The tribunal cited the case of Kirusa Software (P.) Ltd. v. Mobilox Innovations Private Limited, where it was held that the definition of 'dispute' should be given a wide meaning, covering all types of disputes related to debt and default. The tribunal also referenced the Supreme Court's decision in Mobilox Innovative (P.) Ltd. v. Kirusa Software (P.) Ltd., which emphasized that the adjudicating authority should determine if there is a plausible contention requiring further investigation and not merely a spurious defense.Conclusion:The tribunal concluded that the respondent had raised a genuine dispute regarding the applicant's claim, supported by sufficient particulars. The existence of such a dispute disqualified the application for initiating the CIRP under Section 9 of the Code. Consequently, the application was rejected. The tribunal clarified that its observations should not prejudice the applicant's rights in any other forum.Order:The application was rejected, and the tribunal ordered that copies of the order be served to the parties and the case records be consigned to the record room.