Tribunal dismisses application under Section 9 of IBC due to genuine dispute. Civil Court to investigate further.

The Tribunal dismissed the application under Section 9 of the IBC, 2016, as there was a genuine dispute between the parties before the demand notice was issued. The Tribunal considered the existence of a civil suit and disputes over the quality of goods supplied, concluding that further investigation by the Civil Court was necessary. The application was rejected following the Supreme Court's guidance in Mobilox case, with no order as to costs.

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Issues Involved:
1. Existence of a prior dispute.
2. Quality of goods supplied.
3. Breach of terms of the Memorandum of Understanding (MoU).
4. Validity of the demand notice under Section 8 of the Insolvency and Bankruptcy Code (IBC), 2016.

Detailed Analysis:

1. Existence of a Prior Dispute:
The Respondent argued that there was a pre-existing dispute regarding the claim amounts, which rendered the petition liable for dismissal. The Tribunal noted that a civil suit (No. 534/2018) had been filed by the Respondent against the Petitioner seeking restoration of the terms of the MoU, dated 08.05.2017, and this suit was filed before the issuance of the demand notice under Section 8 of the IBC by the Operational Creditor. The Tribunal concluded that the existence of such a civil suit indicates a genuine dispute between the parties.

2. Quality of Goods Supplied:
The Respondent claimed that the Petitioner supplied substandard raw materials, which affected the quality of the Ready-Mix Concrete and led to customer complaints. This issue was brought to the Petitioner’s notice through emails from July/August 2017. The Tribunal acknowledged the exchange of emails regarding the quality of goods and payments demanded by the Operational Creditor, indicating that disputes over the quality of goods existed.

3. Breach of Terms of the Memorandum of Understanding (MoU):
The Petitioner contended that the MoU was not a final binding contract but an interim measure until a final agreement was reached. The Respondent, however, treated the MoU as a binding contract and alleged that the Petitioner breached its terms by not supplying materials as agreed and by taking back possession of the plant. The Tribunal noted that the MoU was indeed treated as a binding contract by both parties up to a certain point, but disputes arose later. The civil suit filed by the Respondent sought specific performance of the MoU and compensation for alleged breaches by the Petitioner.

4. Validity of the Demand Notice under Section 8 of the IBC, 2016:
The Tribunal referred to Section 5(6) of the IBC, which defines a "dispute" and includes suits or arbitration proceedings relating to the existence of debt, quality of goods or services, or breach of representation or warranty. The Tribunal found that the civil suit filed by the Respondent fell within this definition. The Tribunal also cited the Hon’ble Supreme Court’s ruling in Mobilox Innovations (P.) Ltd. v. Kirusa Software (P.) Ltd., which held that an application under Section 9 of the IBC must be rejected if there is a genuine dispute that is not hypothetical, illusory, or a feeble legal argument. The Tribunal concluded that there was a genuine dispute requiring further investigation by the Civil Court.

Conclusion:
The Tribunal observed that there was sufficient evidence of a genuine dispute between the parties before the demand notice was issued. Consequently, following the Supreme Court’s guidance in the Mobilox case, the Tribunal rejected the application filed by the Operational Creditor under Section 9 of the IBC, 2016. The application bearing CP (IB) No. 288/9/HDB/2019 was dismissed with no order as to costs.

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