Operational Creditor's CIRP Application Set Aside for Failure to Meet Requirements

The tribunal set aside the order admitting the application for initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. It found that the Operational Creditor had not met the requirements for issuing a proper demand notice, failed to provide sufficient evidence of the operational debt, and there was a pre-existing dispute. The Corporate Debtor was released from the CIRP, and the Interim Resolution Professional was directed to hand over the records and assets to the Promoter. The tribunal also directed the Adjudicating Authority to consider revising the format of the application in Form 5.

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Issues Involved:
1. Discretion of the Operational Creditor in issuing notice under Form 3 or Form 4.
2. Mandatory requirement of submitting a copy of the invoice with the demand notice under Section 8(1) of the Insolvency and Bankruptcy Code 2016.
3. Mandatory requirement of submitting a copy of the invoice when filing an application under Section 9 of the Code in Form 5.
4. Existence of operational debt and default.
5. Pre-existing disputes between the parties.

Detailed Analysis:

1. Discretion of the Operational Creditor in issuing notice under Form 3 or Form 4:
The tribunal examined whether the Operational Creditor has the discretion to choose the form of the demand notice. It concluded that the choice of issuing a demand notice under Form 3 or Form 4 depends on the nature of the operational debt. If the transaction involves the generation of an invoice, the notice must be issued in Form 4 along with the invoice. Conversely, if no invoice is generated, Form 3 can be used with relevant documents proving the existence of the debt and the amount in default.

2. Mandatory requirement of submitting a copy of the invoice with the demand notice under Section 8(1) of the Insolvency and Bankruptcy Code 2016:
The tribunal clarified that the submission of an invoice is not mandatory if the demand notice is issued in Form 3, provided that documents proving the existence of the operational debt and the amount in default are attached. However, if the demand notice is issued in Form 4, the invoice must be included.

3. Mandatory requirement of submitting a copy of the invoice when filing an application under Section 9 of the Code in Form 5:
The tribunal determined that for filing an application under Section 9 in Form 5, the submission of a copy of the invoice is not mandatory if the demand notice is issued in Form 3, provided that documents proving the existence of the operational debt and the amount in default are attached with the application.

4. Existence of operational debt and default:
The tribunal found that the Operational Creditor failed to provide sufficient documentary evidence, such as purchase orders, invoices, or proof of sale, to substantiate its claim. The tribunal emphasized that the existence of the operational debt and default must be proven with relevant documents. The Operational Creditor's reliance on emails and projections was insufficient to establish the debt.

5. Pre-existing disputes between the parties:
The tribunal noted that there was a pre-existing dispute between the parties regarding the non-collection of LED TVs by the Corporate Debtor, which was communicated through a notice dated 26th March 2018. This notice indicated breaches of the agreement and threatened arbitration. The tribunal concluded that the existence of this dispute, even if the notice was later withdrawn, meant that the application under Section 9 could not be admitted.

Conclusion:
The tribunal set aside the order admitting the application for initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. It found that the Operational Creditor had not met the requirements for issuing a proper demand notice, failed to provide sufficient evidence of the operational debt, and there was a pre-existing dispute. The Corporate Debtor was released from the CIRP, and the Interim Resolution Professional was directed to hand over the records and assets to the Promoter. The tribunal also directed the Adjudicating Authority to consider revising the format of the application in Form 5.

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