2019 (4) TMI 252 - Tri - Insolvency and Bankruptcy

Petition to Start Corporate Insolvency Process Dismissed Based on Pre-Notice Goods Dispute

The Tribunal dismissed the petition to initiate Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, ... Corporate Insolvency Resolution Process - pre-existing dispute - Corporate Debtor failed to make payment of the principal amount and interest @18% towards the supply of elastic rail clips - HELD THAT:- Referring to case of MOBILOX INNOVATIONS PRIVATE LIMITED VERSUS KIRUSA SOFTWARE PRIVATE LIMITED [2017 (9) TMI 1270 - SUPREME COURT OF INDIA] and VIJAY NIRMAN COMPANY PVT. LTD. [2018 (9) TMI 1533 - SUPREME COURT OF INDIA] in case of a dispute existing between the parties prior to the issuance of the demand notice, a petition under S. 9 of IBC is liable to be dismissed. The Corporate Debtor vide emails dated 27.9.2016 and 30.11.2016 informed the Operational Creditor about quality issues with respect to the Elastic Rail Clips. The Operational Creditor sent the demand notice on 13.1.2018. Therefore, before the issuance of demand notice, the Corporate Debtor raised a dispute regarding quality. Petition dismissed Issues Involved:1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC).2. Existence of operational debt and default.3. Existence of a prior dispute regarding the quality of goods supplied.4. Compliance with the procedural requirements under IBC.5. Legal implications of prior disputes on the initiation of CIRP.Detailed Analysis:1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of IBC:The petition was filed by the Operational Creditor to initiate CIRP against the Corporate Debtor due to non-payment of Rs. 92,94,802.52, which included the principal amount and interest. The Operational Creditor supplied Elastic Rail Clips against purchase orders issued by the Corporate Debtor but alleged non-payment of dues.2. Existence of operational debt and default:The Operational Creditor provided evidence of the purchase orders, invoices, consignment notes, and MRN registration receipts to substantiate the claim. The Operational Creditor sent multiple demand notices under IBC, and the Corporate Debtor made a part payment of Rs. 34,66,214/- but requested a Performance Bank Guarantee to release further payments, citing quality issues with the supplied goods.3. Existence of a prior dispute regarding the quality of goods supplied:The Corporate Debtor contended that there were quality defects in the supplied goods, evidenced by emails dated 27.9.2016 and 30.11.2016, and lab reports. The Corporate Debtor argued that these quality issues constituted a prior dispute, which was communicated before the issuance of the demand notice on 13.1.2018. The Operational Creditor denied the existence of any prior dispute and claimed that the quality issues were baseless and an afterthought.4. Compliance with the procedural requirements under IBC:The Tribunal examined whether the Operational Creditor had complied with the procedural requirements under IBC, including the issuance of demand notices and responses from the Corporate Debtor. The Tribunal noted that the Corporate Debtor had raised a dispute regarding the quality of goods before the issuance of the demand notice.5. Legal implications of prior disputes on the initiation of CIRP:The Tribunal referred to the Supreme Court judgments in 'Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd.' and 'K. Kishan v. Vijay Nirman Company Pvt. Ltd.' to determine the impact of prior disputes on the initiation of CIRP. According to these judgments, if a dispute exists before the issuance of the demand notice, the application under Section 9 of IBC must be rejected. The Tribunal found that the Corporate Debtor had raised a quality dispute before the demand notice was issued, which met the criteria for an existing dispute as defined by the Supreme Court.Conclusion:Based on the evidence and legal precedents, the Tribunal concluded that a dispute existed between the parties before the issuance of the demand notice. Therefore, the petition under Section 9 of IBC was dismissed. The Registry was directed to communicate the order to both parties by speed post and email.