2019 (3) TMI 883 - AT - Insolvency and Bankruptcy

Appeal Allowed: Dispute Renders Insolvency Application Not Maintainable

D Srinivasulu and Anr. Versus Dr. Reddy’s Laboratories Ltd.

The National Company Law Appellate Tribunal, New Delhi, allowed the appeal against the admission of an application under the Insolvency and Bankruptcy ... Corporate insolvency process - Outstanding dues - per-existing dues - Respondent issued one legal notice under Section 433 (e) and 434 of the Companies Act, 1956, by letter asking the ‘Corporate Debtor’ to pay the dues - ‘Corporate Debtor’ by its legal reply dated 9th November, 2016, raised dispute relating to late supply of raw material and the poor quality of products and made counter claim - HELD THAT:- It is not denied that the dispute relating to quality of raw material and loss was raised by the ‘Corporate Debtor’ on 9th November, 2016 i.e. much prior to the issuance of the demand notice dated 18th March, 2017 issued under Section 8(1). In the aforesaid background, as we find that there is pre-existence dispute prior to the issuance of the demand notice under Section 8(1), we hold that the application under Section 9 of the ‘I&B Code’ preferred by the Respondent was not maintainable. The impugned order dated 22nd August, 2017 is accordingly set aside. Adjudicating Authority appointing any ‘Interim Resolution Professional’, declaring moratorium, freezing of account, and all other order (s) passed by the Adjudicating Authority pursuant to impugned order and action, if any, taken by the ‘Interim Resolution Professional’, including the advertisement published in the newspaper calling for applications all such orders and actions are declared illegal and are set aside. Issues:1. Appeal against the order dated 22nd August, 2017, admitting an application under Section 9 of the Insolvency and Bankruptcy Code, 2016.2. Existence of a pre-existing dispute prior to the issuance of the demand notice under Section 8(1) of the I&B Code.Analysis:Issue 1:The appeal was filed by the Director and Shareholder of a Corporate Debtor against the order admitting an application under Section 9 of the Insolvency and Bankruptcy Code, 2016. The Appellate Tribunal noted that there was no evidence to suggest that the Respondent had supplied goods or services to the Corporate Debtor. The Appellants argued that there was a pre-existing dispute before the issuance of the notice. The Respondent had issued a legal notice under the Companies Act, 1956, demanding payment, to which the Corporate Debtor responded by raising disputes regarding late supply of raw materials and poor product quality. The Appellate Tribunal found that there was indeed a pre-existing dispute, rendering the application under Section 9 of the I&B Code not maintainable. Consequently, the impugned order was set aside, and all actions taken pursuant to it were declared illegal.Issue 2:The Respondent, an Operational Creditor, contended that the Corporate Debtor had agreed to pay the amount before the dispute arose. However, the Appellate Tribunal found that the dispute regarding quality of raw material and loss was raised by the Corporate Debtor before the issuance of the demand notice under Section 8(1) of the I&B Code. As a result, the application under Section 9 was deemed not maintainable. The Adjudicating Authority's orders appointing an Interim Resolution Professional, declaring a moratorium, and any other actions taken were set aside. The Corporate Debtor was released from the legal constraints and allowed to function independently. The Adjudicating Authority was directed to determine the fee of the Interim Resolution Professional, to be paid by the Corporate Debtor for the period of service. The appeal was allowed with no order as to costs.In summary, the judgment by the National Company Law Appellate Tribunal, New Delhi, dealt with an appeal against the admission of an application under the Insolvency and Bankruptcy Code, 2016. The Tribunal found a pre-existing dispute between the parties, rendering the application not maintainable. Consequently, the impugned order was set aside, and the Corporate Debtor was released from insolvency proceedings, allowed to function independently. The detailed analysis of the disputes and legal contentions led to the dismissal of the application under Section 9 of the I&B Code.