Dispute over operational debt halts insolvency proceedings, Tribunal deems application not maintainable

The Tribunal dismissed the Operational Creditor's application to initiate the Corporate Insolvency Resolution Process against the Corporate Debtor due to the existence of a genuine dispute regarding the claimed operational debt. The Tribunal found that the dispute regarding the breach of contract terms was genuine and ongoing, dating back to 2014-2015, and not spurious. As a result, the application was deemed not maintainable under Section 9 of the Insolvency & Bankruptcy Code, 2016.

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Issues Involved:
1. Default in paying operational debt.
2. Existence of dispute regarding the debt.
3. Maintainability of the application under Section 9 of the Insolvency & Bankruptcy Code, 2016 (I&B Code).

Detailed Analysis:

1. Default in Paying Operational Debt:
The Operational Creditor, M/s. MX Systems International Private Limited, filed an application under Section 9 of the I&B Code against the Corporate Debtor, M/s. McNally Bharat Engineering Company Limited, for initiating the Corporate Insolvency Resolution Process (CIRP). The application claimed a default in paying an operational debt of Rs. 11,13,63,937/- for goods sold and services rendered. The Operational Creditor argued that the Corporate Debtor failed to provide site availability and approve drawings in time, causing project delays. Despite multiple communications, the Corporate Debtor did not make the site available, leading to the claimed debt.

2. Existence of Dispute Regarding the Debt:
The Corporate Debtor contended that the Operational Creditor was unprepared to execute the project, failed to mobilize adequate resources, and did not complete the work as per the contract. The Corporate Debtor had to employ another contractor to complete the work, incurring additional expenses. They also encashed the performance bank guarantee provided by the Operational Creditor. The Corporate Debtor argued that disputes about the services were raised well before the receipt of the demand notice under Section 8 of the I&B Code, indicating that the debt was disputed.

3. Maintainability of the Application Under Section 9 of the I&B Code:
The Corporate Debtor challenged the maintainability of the application, asserting that the person who filed the petition was not duly authorized and the Operational Creditor did not comply with Sections 9(3)(b) and 9(3)(c) of the I&B Code. The Operational Creditor countered that all provisions of law were complied with, and the technical objections raised by the Corporate Debtor were unsustainable. They also pointed out that the Corporate Debtor was planning to sell some assets, which could cause significant losses to the Operational Creditor.

Judgment:
The Tribunal examined the existence of a dispute as per Section 8(2)(a) of the I&B Code and the precedent set by the Supreme Court in Mobilox Innovations Private Ltd. v. Kirusa Software Private Ltd. The Tribunal noted that the dispute regarding the breach of contract terms was genuine and ongoing since 2014-2015, not spurious or an afterthought. The Tribunal emphasized that it is not within its limited jurisdiction to investigate who breached the contract. Given the existence of a genuine dispute, the Tribunal concluded that the application to initiate CIRP was not maintainable.

Order:
The application CP(IB) No.698/KB/2018 filed by the Operational Creditor was dismissed as not maintainable due to the existence of a genuine dispute regarding the claimed operational debt.

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