2020 (1) TMI 677 - AT - Insolvency and Bankruptcy

Tribunal upholds dismissal of appeal on pre-existing dispute under Section 9 of IBC.

The Tribunal dismissed the appeal, affirming a pre-existing bonafide dispute prior to the Demand Notice issuance. The application under Section 9 of IBC ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment - application rejected on the ground of existence of dispute prior to issuance of SCN - HELD THAT:- It is an admitted fact that the Appellant failed to supply coal as per the P.O. dated 9.8.2016. It is not in dispute and in view of the requirement, the Respondent had placed Purchase Order on one Trona Minerals India Pvt. Ltd. vide Purchase Order no. 4400000028 dated 19.09.2016 for supply of 3000 MT of Coal. The stand of the Respondent is that the Appellant had failed to supply coal as ordered on 09.08.2016 and in view of necessity, they had placed and purchased coal from Trona Minerals India Pvt. Ltd. and raised a Debit Note on the Appellant in accordance with clause-8 of the Terms and Conditions as specifically mentioned along with the Purchase Order dated 9.8.2016, which is part of the said Purchase Order - the Appellant clearly admitted that they could not supply the material as per the Purchase Order and the Respondent had issued a Debit Note on the Appellant debiting an amount of ₹ 49,50,000/- and the same has been communicated to the Appellant by e-mail dated 23.09.2017 at 12:58 P.M. and the Appellant had received the said e-mail and replied to the said e-mail on the very same day i.e., on 23.09.2017 at 3.14 P.M. Thus it is a case of pre-existence of dispute prior to the issuance of Demand Notice dated 01.02.2018. It is clear that the Adjudicating Authority has to satisfy whether there is pre-existence of dispute prior to the receipt of Demand Notice or there is a record of dispute in the Information utility and in such case, the Adjudicating Authority shall reject the application - there is an existence of dispute prior to the receipt of Demand Notice. Appeal dismissed. Issues Involved:1. Existence of dispute prior to the issuance of the Demand Notice.2. Validity of the Debit Note raised by the Respondent.3. Applicability of previous judgments to the present case.Detailed Analysis:1. Existence of Dispute Prior to the Issuance of the Demand Notice:The Appellant filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) to trigger the Insolvency Resolution Process against the Respondent. The Adjudicating Authority dismissed the application on the ground of the existence of a dispute prior to the issuance of the Demand Notice dated 01.02.2018. The Appellant argued that the dispute raised by the Respondent was not bonafide and was merely a sham to escape liability. However, the Respondent contended that the dispute was bonafide and raised much earlier than the Demand Notice.The facts reveal that the Respondent placed a Purchase Order on 09.08.2016 for the supply of 3000 MT of coal. The Appellant issued a Demand Notice on 01.12.2018, demanding Rs. 43,18,668/- based on certain invoices. In response, the Respondent issued a Debit Note on 31.12.2016 for Rs. 49.50 lakhs against the non-supply of 3500 MT coal, stating that they had to procure coal from other parties at a differential price. The Appellant acknowledged the receipt of this Debit Note but disputed its validity.The Tribunal noted that the Appellant failed to supply coal as per the Purchase Order dated 09.08.2016, leading the Respondent to purchase coal from another supplier and raise a Debit Note as per the terms of the Purchase Order. The Tribunal concluded that there was a pre-existence of a dispute prior to the issuance of the Demand Notice, making the application under Section 9 of IBC unsustainable.2. Validity of the Debit Note Raised by the Respondent:The Respondent raised a Debit Note dated 31.12.2016 for Rs. 49.50 lakhs, which was communicated to the Appellant via email on 23.09.2017. The Appellant replied on the same day, stating that the Debit Note was not acceptable and that they would proceed legally to recover the dues.The Tribunal found that the Respondent had acted in accordance with Clause 8 of the Purchase Order, which allowed them to procure coal from the market at the risk and cost of the Appellant if the latter failed to supply the coal as scheduled. The Tribunal accepted the Respondent's stand that the Debit Note was issued legitimately and in compliance with the terms of the Purchase Order.3. Applicability of Previous Judgments to the Present Case:The Appellant relied on the judgment of the Hon'ble Supreme Court in 'Mobilox Innovations Private Limited vs. Kirusa Software Private Limited,' which states that the Adjudicating Authority can reject an application under Section 9 of IBC if the Corporate Debtor raises a substantial or bonafide dispute. The Appellant argued that the dispute raised by the Respondent was not bonafide.However, the Tribunal found that the judgments cited by the Appellant were not applicable to the present case. In 'Mobilox Innovations Pvt. Ltd.,' the Supreme Court emphasized that the Adjudicating Authority must reject the application if there is a plausible contention requiring further investigation and the dispute is not spurious, hypothetical, or illusory. The Tribunal concluded that the dispute in the present case was bonafide and existed prior to the issuance of the Demand Notice.The Tribunal also referred to the relevant provisions of the IBC, particularly Sections 8 and 9, which outline the process for initiating corporate insolvency resolution and the conditions under which an application can be rejected. The Tribunal upheld the Adjudicating Authority's decision to reject the application, finding no grounds for interference.Conclusion:The Tribunal dismissed the appeal, affirming that there was a pre-existing bonafide dispute prior to the issuance of the Demand Notice. The application under Section 9 of IBC was rightly rejected by the Adjudicating Authority, and no interference was warranted. The appeal was dismissed with no order as to cost.