2019 (2) TMI 1113 - AT - Insolvency and Bankruptcy

Tribunal rules in favor of Appellant in operational debt case, allows initiation of insolvency resolution process

Overseas Infrastructure Alliance (India) Pvt. Ltd. Versus Kay Bouvet Engineering Ltd.

The Tribunal found in favor of the Appellant, determining that the transaction in question qualified as an 'Operational Debt' and that the Appellant met ... Initiation of ‘Corporate Insolvency Resolution Process’ - Held that:- Given the frame of the suit and the nature of relief claimed therein coupled with the fact that no relief with regard to the subject matter of petition under Section 9 of I&B Code was claimed therein against the Respondent, we are of the considered view that the contention raised by the Respondent does not require further investigation and the dispute raised in reply to the demand notice is a mere bluster. The impugned order passed by the Adjudicating Authority on 26th July, 2018 cannot be supported. The impugned order suffers from grave legal infirmity. The Adjudicating Authority seriously erred in declining to recognize Appellant as an ‘Operational Creditor’ and in arriving at the conclusion that there was an existence of dispute prior to filing of the petition. Having regard to the findings recorded hereinabove the impugned order cannot be sustained and the same is set aside. The appeal is allowed. The matter is remitted back to the Adjudicating Authority to admit the petition filed by the Appellant under Section 9 of the I&B Code after giving limited notice to the Respondent – Corporate Debtor so as to enable it to settle the claim before its admission. Issues Involved:1. Whether the transaction in question qualifies as an 'Operational Debt'.2. Whether the Appellant qualifies as an 'Operational Creditor'.3. Whether the existence of a dispute bars the initiation of Corporate Insolvency Resolution Process (CIRP).Issue-wise Detailed Analysis:1. Whether the transaction in question qualifies as an 'Operational Debt':The Tribunal examined the definitions under the Insolvency and Bankruptcy Code (I&B Code). Section 5(21) defines 'Operational Debt' as a claim in respect of the provision of goods or services. The Tribunal noted that the Tripartite Agreement dated 18th December 2010 between Mashkour, the Appellant, and the Respondent involved the provision of services and supply of goods for the commissioning of a sugar plant. The Appellant had advanced 10% of the contract value to the Respondent, which was deemed as an advance payment for services and goods. Therefore, the Tribunal concluded that the transaction qualifies as an 'Operational Debt'.2. Whether the Appellant qualifies as an 'Operational Creditor':Under Section 5(20) of the I&B Code, an 'Operational Creditor' is defined as a person to whom an operational debt is owed. The Tribunal found that the Appellant, having advanced 10% of the contract value to the Respondent, had a claim in respect of the provision of goods and services. Therefore, the Appellant qualifies as an 'Operational Creditor'.3. Whether the existence of a dispute bars the initiation of CIRP:The Tribunal referred to the Hon'ble Supreme Court's judgments in 'Innoventive Industries Ltd. v. ICICI Bank' and 'Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd.' to interpret the term 'existence of a dispute'. The Tribunal noted that the dispute must be pre-existing and not spurious, hypothetical, or illusory. The Respondent claimed that the Appellant's suit for specific performance indicated a dispute. However, the Tribunal observed that the suit primarily sought relief against EXIM Bank and did not seek substantial relief against the Respondent. The Tribunal concluded that the alleged dispute was a mere bluster and did not bar the initiation of CIRP.Conclusion:The Tribunal found that the Adjudicating Authority erred in not recognizing the Appellant as an 'Operational Creditor' and in concluding that there was an existence of a dispute. The Tribunal set aside the impugned order and remitted the matter back to the Adjudicating Authority to admit the petition filed by the Appellant under Section 9 of the I&B Code after giving limited notice to the Respondent. The Adjudicating Authority was directed not to reconsider the issues settled in this appeal. The appeal was allowed with no orders as to costs.