2019 (8) TMI 329 - AT - IBC

Tribunal Confirms Pre-existing Dispute on Goods Quality; Dismisses Appeals, Urges Alternative Legal Remedies Under IBC.

R.S. Cottmark (India) Pvt. Ltd. and M/s. Krishna Bio Tech Versus Rajvir Industries Ltd.

The tribunal upheld the Adjudicating Authority's decision, confirming a pre-existing dispute concerning the quality of goods supplied by the Appellants ... Maintainability of petition - Initiation of Corporate Insolvency Resolution Process - Corporate Debtor - Section 8 of Insolvency & Bankruptcy Code, 2016 - existence of dispute as on the date of issue of Demand Notice - pre-existing dispute or not - HELD THAT:- The Hon’ble Supreme Court in “Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software (P) Limited [2017 (9) TMI 1270 - SUPREME COURT] it is held that the ‘existence of dispute’ and/or the suit or arbitration proceeding must be pre-existing i.e. it must exist before the receipt of the Demand Notice or Invoice as the case may be. In the present case, the existence of dispute apparently establishes that the goods supplied by the Appellants have been rejected as per Quality Control Report. In the impugned judgement, the Adjudicating Authority gave his finding to establish the existence of dispute with regard to LOC issued by the Respondent to the extent of ₹ 39,15,148/-. The IBC, 2016 is not a recovery proceeding - the Adjudicating Authority rightly rejected the petitions with aforesaid reasons - petition dismissed. Issues Involved:1. Existence of pre-existing dispute.2. Validity of the Letter of Credit (LOC) as settlement.3. Quality of goods supplied.4. Applicability of Section 8 of the Insolvency & Bankruptcy Code (IBC), 2016.Issue-wise Detailed Analysis:1. Existence of Pre-existing Dispute:The primary issue in the appeals was whether there was a pre-existing dispute between the parties before the issuance of the Demand Notice under Section 8 of the IBC. The Appellants argued that no dispute was brought on record by the Respondent (Corporate Debtor) before the delivery of the Demand Notice. However, the Respondent contended that disputes existed prior to the Demand Notice dated 20.11.2017, citing quality issues with the goods supplied. The tribunal found that there were indeed disputes raised by the Respondent regarding the quality of goods, as evidenced by communications and quality control reports dated before the Demand Notice.2. Validity of the Letter of Credit (LOC) as Settlement:The Appellants argued that the LOC issued by the Respondent was not intended to settle their dues but to secure further consignments from another party, M/s Samkit Bio Farms Pvt. Ltd. The Respondent, however, claimed that the LOC was issued in full and final settlement of the claims of the Appellants and other parties. The tribunal noted that the LOC was honored and the amount was debited from the Respondent's account, indicating a resolution of the dispute. The tribunal did not accept the Appellants' contention that the LOC was not a settlement of their claims.3. Quality of Goods Supplied:The Respondent raised issues regarding the quality of the cotton bales supplied by the Appellants, which were allegedly not up to the required standards. The tribunal found that the Respondent had communicated these quality concerns to the Appellants and the market intermediary, Apex Cotton Agency (I) Limited, before the issuance of the Demand Notice. The tribunal concluded that the existence of these quality disputes was established through various documents, including quality control reports and communications dated before the Demand Notice.4. Applicability of Section 8 of the IBC, 2016:The tribunal referred to Section 5(6) of the IBC, which defines a 'dispute' and includes issues related to the quality of goods. The tribunal also cited the Supreme Court's judgment in 'Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software (P) Limited,' which held that the existence of a dispute must be pre-existing before the receipt of the Demand Notice. The tribunal found that the Respondent had raised a plausible contention regarding the quality of goods, which required further investigation and was not a patently feeble legal argument.Conclusion:The tribunal upheld the decision of the Adjudicating Authority, finding that there was a pre-existing dispute regarding the quality of goods supplied by the Appellants. The tribunal dismissed the appeals and reiterated that the IBC is not a recovery proceeding. The Appellants were advised to seek alternative remedies available under the law for their claims.