2020 (1) TMI 591 - Tri - Insolvency and Bankruptcy

Tribunal denies petition under Insolvency & Bankruptcy Code due to pre-existing dispute over legal services payment.

The Tribunal rejected the petition under the Insolvency and Bankruptcy Code, 2016, as there was a substantial pre-existing dispute between the parties ... Pre-existing dispute under Section 9(5)(ii)(d) of the Insolvency and Bankruptcy Code, 2016 - admission under Section 8 demand notice - contractual milestone invoicing and standard hourly rates (clause 2.3-2.4) - absence of documentary proof of liabilityPre-existing dispute under Section 9(5)(ii)(d) of the Insolvency and Bankruptcy Code, 2016 - admission under Section 8 demand notice - There existed a pre existing dispute between the parties which disentitled the Operational Creditor to relief under Section 9. - HELD THAT: - The Adjudicating Authority examined the agreement, related communications and the Corporate Debtor's reply to the demand notice. Email correspondence (including the exchange of 21.06.2016) and the Corporate Debtor's reply to the demand notice raised substantive contentions that the Petitioner had not performed the contractual obligations, that the DRHP was never filed, and that further payments were conditional on milestones. These material communications amounted to a concrete dispute over fulfilment of the Agreement and the existence/quantum of liability. On this basis the Authority held that the petition could not be admitted in view of Sec.9(5)(ii)(d) of the Code. [Paras 18, 19, 20]The petition under Section 9 was not admitted because a pre existing dispute between the parties was found.Contractual milestone invoicing and standard hourly rates (clause 2.3-2.4) - absence of documentary proof of liability - Invoices and claimed dues were not supported by clear documentary proof and were inconsistent with the contractually required invoicing milestones and post 12 month invoicing mechanism. - HELD THAT: - The Agreement specified staged payments (initial tranche, on filing of DRHP, on closing or 12 months) and, if the offering was not closed within 12 months, payment on standard hourly rates not exceeding the fixed fee. The Authority found that the Corporate Debtor had paid the initial tranche and disbursements but the DRHP was never filed and no invoice based on agreed 'standard hourly rates' was raised within the 12 month period. The Operational Creditor also did not place on record documentary proof of amounts acknowledged in writing by the Corporate Debtor. These deficiencies reinforced the existence of a dispute and undermined the claim for admission under Section 9. [Paras 14, 15, 16, 17]The asserted dues were not established by documentary evidence in accordance with the contractual invoicing regime, supporting rejection of the petition.Final Conclusion: The Tribunal found a pre existing dispute and absence of requisite documentary proof of liability; accordingly the Company Petition under Section 9 of the IBC was rejected and the application dismissed, with no order as to costs. Issues Involved:1. Validity of the Petition under the Insolvency and Bankruptcy Code (IBC), 2016.2. Alleged default in payment by the Corporate Debtor.3. Pre-existing dispute between the parties.4. Limitation period for filing the petition.Issue-wise Detailed Analysis:1. Validity of the Petition under the Insolvency and Bankruptcy Code (IBC), 2016:The petition was filed by the Operational Creditor under Section 9 of the IBC, 2016, read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The Operational Creditor claimed an outstanding amount of Rs. 1,29,42,660/- (principal amount of Rs. 97,31,324/- along with interest amount of Rs. 32,11,336/-) based on an Agreement for Legal Services dated 15.09.2014.2. Alleged default in payment by the Corporate Debtor:The Operational Creditor provided legal services for the initial public offering (IPO) of shares in the Corporate Debtor and raised three invoices. The Corporate Debtor allegedly failed to pay one of these invoices amounting to USD 150,221.13. Despite repeated requests and a Demand Notice dated 27.03.2018, the payment was not made.3. Pre-existing dispute between the parties:The Corporate Debtor contended that the petition was filed beyond the limitation period and that the Operational Creditor did not provide the entirety of the services as agreed. The Corporate Debtor argued that the services were to be provided to financial institutions and not directly to the Corporate Debtor. The payment schedule was contingent upon specific milestones, such as the filing of the draft red herring prospectus (DRHP) with SEBI, which was never completed. The Corporate Debtor had already paid USD 50,000 and USD 13,178.34 for initial services and disbursements. The remaining amounts were not payable as the IPO and private placement were not completed within 12 months. The Corporate Debtor also highlighted that the standard hourly rates were never communicated, and the invoice was raised arbitrarily after the expiry of the 12-month period.4. Limitation period for filing the petition:The Corporate Debtor argued that the petition was filed almost three months after the limitation period expired. The Agreement stipulated that any invoice should be raised within 12 months from the date of the Agreement if the IPO and private placement were not completed. The limitation period for claiming any amounts under the Agreement ended on 15.09.2018, but the petition was filed on 06.12.2018.Judgment:The Tribunal observed that the Agreement for Legal Services was entered on 15.09.2014, and the payment schedule was clearly outlined in Clause 2. The Corporate Debtor had made initial payments as per the Agreement, but no further payments were made as the milestones were not achieved. The Tribunal noted that the Operational Creditor did not raise any invoice based on the standard hourly rates within the stipulated period. The Tribunal also found that there was substantial pre-existing dispute between the parties, as evidenced by numerous email correspondences, including one dated 21.06.2016, where the Corporate Debtor requested a waiver of the outstanding amount.In view of the pre-existing dispute and the failure to meet the stipulated conditions in the Agreement, the Tribunal decided not to admit the petition under Section 9(5)(ii)(d) of the IBC, 2016. The application was rejected, and no order as to costs was made.