2019 (5) TMI 1300 - Tri - Insolvency and Bankruptcy

Petition under Insolvency Code dismissed over pre-existing dispute

The petition under Section 9 of the Insolvency and Bankruptcy Code, 2016, was dismissed due to the existence of a pre-existing dispute between the ... Recovery of debt from Corporate Debtor - pre-existence of dispute or not - Change of address of registered office of Corporate Debtor from Mumbai to Gujarat - Jurisdictional change for chamge in registered office - HELD THAT:- Although the Registered Office of the Corporate Debtor allowed to be changed from Mumbai to Gujarat in Order dated 30.01.2017 of the Registrar of Companies, Mumbai, the Order specifically mentioned that, quote, “(b) Further as regards dispute between the Company and M/s. APDAX Constructions, there will be no jurisdictional change for initiating any legal action, even after change in registered office of the Company.” Accordingly, the impugned Petition deserves to be adjudicated in Mumbai. It is worth to mention that since this is a Petition under Section 9, therefore, the element of pre-existence of “Dispute” has to be examined before Admission of the Petition. It is an ascertainable position, as is emerging from the evidences on record, that all the six Invoices against which payments of ₹72,83,566/-(inclusive of Service Tax) are allegedly pending, were raised by the Operational Creditor on 06.12.2014 and followed up through various emails subsequently. It is clear that there is an existing of ‘dispute’ (default) in this case prior to the date of raising of Invoices by the Operational Creditor. The impugned Invoices are dated 06.12.2014 whereas the communication of ‘defects’ from the Respondent was in October, 2014. Therefore, it is an undisputed fact that there is an ‘existing dispute’ in this matter. The petition does not deserve admission and is dismissed. Issues Involved:1. Existence of Debt and Default2. Pre-existence of Dispute3. Jurisdictional Change and Legal ProceedingsIssue-wise Detailed Analysis:1. Existence of Debt and Default:The Petitioner, an Operational Creditor, submitted a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016, against the Corporate Debtor for a debt amount of Rs. 43,37,621/- plus interest at 18% per annum. The Petitioner alleged that it had rendered various services including painting, polishing, civil works, plumbing, carpentry, and more at the Corporate Debtor's office. Invoices totaling Rs. 88,66,806/- were raised, out of which Rs. 45,29,185/- was received, leaving a balance of Rs. 43,37,621/-. Despite reminders, the Corporate Debtor failed to pay the outstanding amount.2. Pre-existence of Dispute:The Corporate Debtor countered the petition by submitting that there were pre-existing disputes regarding the quality of work performed by the Operational Creditor. Emails from October 2014 to December 2014 were presented, highlighting defects such as improper soundproofing, cracks in marble, negligent electrification leading to rodent issues, substandard materials, and lack of proper ventilation. The Tribunal found that these communications indicated a pre-existing dispute before the invoices were raised on 06.12.2014.3. Jurisdictional Change and Legal Proceedings:The Registered Office of the Corporate Debtor was shifted from Maharashtra to Gujarat as per an order dated 30.01.2017 by the Registrar of Companies, Mumbai. However, it was specifically mentioned that there would be no jurisdictional change for initiating legal actions regarding the dispute between the Company and the Operational Creditor. Thus, the Tribunal adjudicated the petition in Mumbai.Findings:The Tribunal emphasized that for a petition under Section 9, the existence of a pre-existing dispute must be examined. The evidence showed that the Corporate Debtor had raised issues about the quality of work before the invoices were issued. Therefore, the Tribunal concluded that there was a pre-existing dispute, making the petition inadmissible under the Insolvency and Bankruptcy Code. The Tribunal referenced the Supreme Court's decision in K. Kishan v. M/s. Vijay Nirman Company Pvt. Ltd., which stated that operational creditors cannot use the Insolvency Code to enforce debt in cases of pre-existing disputes.Conclusion:The petition was dismissed due to the pre-existing dispute. The Petitioner was advised to seek relief through other legal forums if deemed appropriate.