2018 (6) TMI 972 - AT - Insolvency and Bankruptcy

Appeal dismissed due to failure to prove pre-existing dispute or debt repayment within stipulated period.

Mr. V.V. Nagarajan Versus M/s Vishnusudha Textiles And M/s Sri Nagananthana Mills Ltd., Through Insolvency Resolution Professional

Mr. V.V. Nagarajan Versus M/s Vishnusudha Textiles And M/s Sri Nagananthana Mills Ltd., Through Insolvency Resolution Professional - TMI Issues Involved:1. Existence of a pre-existing dispute.2. Compliance with the conditions necessary to trigger Corporate Insolvency Resolution Process (CIRP).3. Allegations of suppression of material facts by the Respondent.4. Validity of the debt and default.5. Legal implications of the security provided (bus permits).Detailed Analysis:1. Existence of a Pre-Existing Dispute:The Appellant argued that there was a pre-existing dispute between the parties, which should have warranted the rejection of the application under Section 9 of the Insolvency and Bankruptcy Code (I&B Code). The Appellant claimed that the amount owed was settled and that the Respondent had suppressed material facts regarding bus permits and promissory notes held as security. However, the Adjudicating Authority found that the Appellant failed to produce a bank certificate to substantiate the payments claimed to have been made to the Respondent.2. Compliance with Conditions for Triggering CIRP:The requisite conditions for triggering CIRP under Section 9 of the I&B Code include:- Occurrence of a default.- Delivery of a demand notice of unpaid operational debt.- Non-receipt of payment or a reply indicating the existence of a dispute within 10 days of receipt of the demand notice.The Respondent issued multiple demand notices, and the Appellant's responses did not indicate a pre-existing dispute or repayment of the debt. The Appellant's failure to respond adequately within the stipulated 10-day period justified the Respondent's application for initiating CIRP.3. Allegations of Suppression of Material Facts:The Appellant contended that the Respondent had adopted a modus operandi to cheat and retain valuable bus route permits without adjusting their value. However, the Adjudicating Authority noted that the transfer of bus permits occurred before the demand notices were issued, and this did not materially affect the Respondent's claim regarding the debt. The Respondent argued that the bus documents were only endorsed as security and could not be sold, which was accepted by the Authority.4. Validity of the Debt and Default:The record showed that the parties continued their business relationship even after confirming the outstanding balance on 31.12.2015. The Respondent raised 27 invoices for the supply of Polyester Staple Fibre, reflecting an outstanding balance of Rs. 1,18,86,658/- which the Appellant failed to repay. The Appellant did not demonstrate that he had informed the Respondent of any dispute or repaid the debt within the required 10-day period after receiving the demand notice.5. Legal Implications of the Security Provided:The Appellant's argument that buses given as security should count towards the debt repayment was dismissed. The buses were hypothecated and could not be considered as payment towards the outstanding debt. The Adjudicating Authority stated that if the Respondent manipulated the transfer of vehicles, the Appellant should seek appropriate legal remedies, but this did not affect the triggering of CIRP due to the default.Conclusion:The appeal was dismissed, and the impugned order admitting the Respondent's application under Section 9 of the I&B Code was upheld. The Tribunal found no legal infirmity in the order, and the appeal was deemed devoid of merit. No orders as to costs were made.