2019 (9) TMI 532 - AT - Insolvency and Bankruptcy

Appeal Dismissed, CIRP Initiated, Valid Demand Notice, Procedural Compliance Upheld

The Tribunal dismissed the appeal, affirming the initiation of the Corporate Insolvency Resolution Process against the 'Corporate Debtor.' It found ... Admissibility of petition - Initiation of Corporate Insolvency Resolution Process - no privity of contract - pre-existing dispute - default in respect of ‘operational debt’ in the manner provided under Section 9 of the I&B Code - HELD THAT:- The fact that ‘Priya Trading Company’ was the name and style under which Arun Agrawal and Annapurna Agrawal have been operating was never a fact required to be discovered or rediscovered. Both are synonyms and well within the knowledge of the ‘Corporate Debtor’ as also the ‘Appellant’. The ground raised to offset the triggering of Corporate Insolvency Resolution Process at the instance of ‘Priya Trading Company’ as ‘Operational Creditor’ by taking plea of there being no privity of contract between the ‘Operational Creditor’ and the ‘Corporate Debtor’ falls flat and has to be dismissed as being absurd and repugnant to the admitted position in regard to the status and locus standi of the ‘Operational Creditor’. Contention raised on this score is rebuffed. Unpaid Liability - alleged default on the part of Operational Creditor - HELD THAT:- There is a crystal clear admission of liability of ‘Corporate Debtor’ to pay an amount of ₹ 2,96,54,219.00 to Arun Agrawal and Annapurna Agrawal who, we have found, were admittedly operating under the Trade Name of ‘Priya Trading Company’. This is notwithstanding the fact that such admission of liability to pay has been subjected to clearing of disputes as mentioned in notice dated 16th June, 2018 and reply notice dated 2nd July, 2018. Reference to such notice and reply notice would reveal that the dispute related to breach of terms of the agreement as regards generating of revenue by the ‘Corporate Debtor’ which according to it missed the intended target due to non-supply/ short supply of raw material. However, such dispute does not constitute a pre-existing dispute qua the amount payable in law or in fact respecting which default has been committed. Admittedly, the ‘Corporate Debtor’ did not discharge the liability in regard to the aforesaid operational debt and committed default by raising the bogey that it owed the amount in question to Arun Agrawal and Annapurna Agrawal but not to the ‘Operational Creditor’ as if they were distinct entities. Viewed thus, the argument advanced in regard to pre-existing dispute being devoid of merit is rejected. Appeal dismissed. Issues Involved:1. Privity of Contract between Operational Creditor and Corporate Debtor.2. Pre-existing Dispute between the parties.3. Admission of Liability by the Corporate Debtor.4. Validity of the Demand Notice under Section 8 of the I&B Code.5. Triggering of Corporate Insolvency Resolution Process under Section 9 of the I&B Code.Issue-wise Detailed Analysis:1. Privity of Contract between Operational Creditor and Corporate Debtor:The appellant contended that there was no privity of contract between the 'Operational Creditor' and the 'Corporate Debtor,' arguing that the supply of raw materials was through Arun Agrawal and Annapurna Agrawal, not directly by 'Priya Trading Company.' The Tribunal found that the 'Corporate Debtor' was aware that Arun Agrawal and Annapurna Agrawal were operating under the name 'Priya Trading Company.' This was evidenced by a registered lawyer's notice dated 16th June 2018, which acknowledged that both individuals were running the business under this name. Thus, the Tribunal dismissed the argument of no privity of contract as 'absurd and repugnant to the admitted position.'2. Pre-existing Dispute between the parties:The appellant argued that there was a pre-existing dispute, which should prevent the initiation of the Corporate Insolvency Resolution Process. The Tribunal referred to the Supreme Court's decision in 'Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd.,' which stated that the adjudicating authority must reject the application if there is a 'plausible contention' requiring further investigation and not a mere 'feeble legal argument.' The Tribunal found no substantial pre-existing dispute that would bar the initiation of the insolvency process.3. Admission of Liability by the Corporate Debtor:The Tribunal noted that the 'Corporate Debtor' had admitted liability in its reply to the demand notice dated 14th July 2018. The reply stated that an amount of Rs. 2,96,54,219 was owed to Arun Agrawal and Annapurna Agrawal, who were operating under the name 'Priya Trading Company.' The Tribunal emphasized that the obligation to pay this amount could not be subjected to any dispute arising from the breach of contractual provisions regarding further supply of raw materials. Thus, the Tribunal concluded that the 'Corporate Debtor' had acknowledged its liability.4. Validity of the Demand Notice under Section 8 of the I&B Code:The 'Operational Creditor' issued a demand notice dated 5th July 2018, supported by copies of invoices demanding payment of outstanding dues. The 'Corporate Debtor' replied on 14th July 2018, denying liability and questioning the privity of contract. The Tribunal found that the demand notice was valid and that the 'Corporate Debtor's' response did not constitute a valid dispute under Section 8 of the I&B Code. The Tribunal reiterated that the existence of a genuine dispute must be supported by evidence and not merely asserted.5. Triggering of Corporate Insolvency Resolution Process under Section 9 of the I&B Code:The Tribunal confirmed that the 'Operational Creditor' had followed the procedure outlined in Sections 8 and 9 of the I&B Code. The 'Corporate Debtor' failed to pay the outstanding amount or raise a valid dispute within the stipulated ten-day period. The Tribunal held that the unpaid operational debt was sufficient to trigger the Corporate Insolvency Resolution Process. The Tribunal dismissed the appeal, finding no legal infirmity or factual frailty in the impugned order.Conclusion:The Tribunal dismissed the appeal, affirming the initiation of the Corporate Insolvency Resolution Process against the 'Corporate Debtor.' The Tribunal found that there was privity of contract, no substantial pre-existing dispute, and an admitted liability. The demand notice was valid, and the 'Operational Creditor' had complied with the procedural requirements under the I&B Code. The appeal was deemed frivolous, but no costs were imposed.