2018 (4) TMI 937 - AT - Insolvency and Bankruptcy

Appellate Tribunal Dismisses Insolvency Application, Emphasizes Contractual Dispute

The Appellate Tribunal upheld the dismissal of the application under Section 9 of the Insolvency and Bankruptcy Code, stating that the claim did not ... Corporate Insolvency Resolution Process - whether non-payment of advance could not give rise to a claim as an operational debt? - Held that:- The claim set up by the Appellant does not fall within the definition of operational debt, default in respect whereof would justify triggering of ‘Corporate Insolvency Resolution Process’ in terms of Section 9 of ‘I&B Code’. What emerges from record is that there is a plausible dispute between the parties in regard to execution of contract involving supply of material as well as rendering of works at the site. The mere fact that the Operational Creditor was entitled to mobilization advance prior to commencement of actual work in the wake of Corporate Debtors plea that no machinery or equipment was moved to the construction site raised a debatable issue which could be agitated before the Civil Court. This is apart from the fact that the claim set up by the Appellant in the final bill dated 4th September, 2017 and the notice under Section 8 of ‘I&B Code’ is at variance. This Appellate Tribunal is of the opinion that there is no legal infirmity in the impugned order. Appeal dismissed. Issues:Dismissal of application under Section 9 of Insolvency and Bankruptcy Code, 2016 by the Adjudicating Authority.Analysis:1. Background and Appellant's Claim:The Appellant, as an Operational Creditor, filed an application under Section 9 of the Insolvency and Bankruptcy Code against the Corporate Debtor for default in payment. The claim arose from an advance payment dispute related to a construction contract between the parties. The Appellant alleged non-payment of a mobilization advance, leading to the application for triggering the Corporate Insolvency Resolution Process.2. Respondent's Defense:The Respondent, in response, contended that the mobilization process was not completed by the Appellant, justifying the withholding of the advance. It was argued that the Appellant initiated demobilization and failed to commence work at the project site, causing losses to the Corporate Debtor as per the contract terms.3. Adjudicating Authority's Findings:Upon reviewing the pleadings and documents, the Adjudicating Authority noted the contractual agreement for civil construction works between the parties. It found discrepancies in the claims made by both parties regarding the advance payment. The Authority declined to delve into site setup issues beyond its jurisdiction under Section 9 of the I&B Code. It emphasized the need for a debt due arising from goods provision or service rendering to sustain an operational debt claim.4. Appellate Tribunal's Decision:The Appellate Tribunal upheld the dismissal of the application, stating that the claim did not qualify as an operational debt under Section 9 of the I&B Code. It highlighted the existence of a dispute between the parties regarding the contract execution, indicating a civil court remedy for resolution. The Tribunal observed inconsistencies between the final bill and the notice under Section 8 of the I&B Code, reinforcing the lack of legal basis for the claim.5. Conclusion:The appeal was dismissed, granting the Appellant the option to pursue remedies in a competent forum for the alleged breach of contract. The Tribunal emphasized the need for a clear debt arising from goods provision or service rendering to trigger the Corporate Insolvency Resolution Process, indicating a contractual dispute beyond the scope of insolvency proceedings.This comprehensive analysis of the judgment highlights the key arguments, findings, and decisions made by the Adjudicating Authority and the Appellate Tribunal concerning the dismissal of the application under the Insolvency and Bankruptcy Code.