2019 (3) TMI 251 - Tri - Insolvency and Bankruptcy

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 ... Corporate Insolvency Resolution Process - corporate debtor committed default in paying the debt - HELD THAT:- One of the employees of the operational creditor sent e-mail to the corporate debtor reiterating the above point in dispute. That e-mail was replied by the corporate debtor objecting the contentions raised by the operational creditor. As informed to the operational creditor mentioning that those are the issues outside terms of the contract. Such correspondences raising points against each other were going on for long 2-3 years prior to the demand notice. Lastly, the operational creditor sent demand notice dated 18.01.2018 under section 8 of I&B Code. It was replied by the corporate debtor. It is not in dispute that ultimately, the operational creditor did not complete the work of erection of firefighting system. Corporate Debtor assigned that work to other contractor and that got it done. The germane issue arises out of the controversy is that, “as to who committed the breach of the terms of the contract”. This dispute cannot be said to be spurious one or being raised as an afterthought by the corporate debtor. The dispute about the breach of terms of contract is going on since 2014-2015 onwards. In view of the rulings of Apex Court in the case of Mobilox Innovations Private Ltd.[2017 (9) TMI 1270 - SUPREME COURT OF INDIA] this authority is not expected to examine the matter of dispute in detail but only has to see whether the dispute is genuine or not. So long dispute exists, the authority has to reject the application. As found that dispute as raised by the corporate debtor about the operational debt as claimed against them by the operational creditor cannot be said to be imaginary one. It requires detailed enquiry into the matter. Hence, not inclined to admit the Corporate Debtor in Corporate Insolvency Resolution Process as there exists the dispute about the amount claimed. 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.