2020 (5) TMI 345 - Tri - Insolvency and Bankruptcy

Dismissal of Insolvency Application Due to Pre-existing Disputes Emphasizes Non-replacement of Recovery Forums

Shahnawaz Siddiqui Versus Newton Engineering And Chemicals Ltd.

The Adjudicating Authority dismissed the application under section 9 of The Insolvency and Bankruptcy Code, 2016, due to pre-existing disputes between the ... Maintainability of application - applicant/operational creditor is an individual was an employee of the corporate debtor residing at the address given in the cause title - first and foremost objection raised by the corporate debtor is that the applicant has suppressed many material facts and stated many false things to mislead the Adjudicating Authority - pre-Existing dispute or not - HELD THAT:- The corporate debtor had informed the applicant about the issue of delay in the progress of work at site of ONGC and, therefore, ONGC had issued termination notice to the corporate debtor on 9th May, 2017 (page 39).On perusal of the records it is also found that the demand notice issued by the petitioner on 1-9-2018 is replied by the corporate debtor on 15-9-2018 (page 10) whereby the corporate debtor has raised various disputes/objections with regard to performance, contribution, cost control and delay in completion of the project by the petitioner. The corporate debtor has also raised dispute regarding unauthorised absence of the petitioner from the duties and tampering the attendance register. Thus, there is pre-existing dispute in as much as the operational creditor has totally failed to provide the services to the corporate debtor as envisaged in the offer letter. That apart, claim of the applicant is not crystalized so as to establish the date of default and amount due and payable, which is one of the main ingredients to initiate Insolvency Proceedings. Thus, before admitting the application, this Adjudicating Authority is to see that, at this stage, as to whether there is a plausible contention which requires further investigation. The operational creditor has totally failed to establish that amount is due and payable and not yet been paid. The Adjudicating Authority is of the considered view that the instant application devoid of merit and as such is not maintainable on the very reason that there is/are pre-existing disputes with regard to the delay in completion of the work site of ONGC - Application dismissed. Issues:- Application under section 9 of The Insolvency and Bankruptcy Code, 2016.- Dispute over non-payment of salary by corporate debtor to operational creditor.- Allegations of unsatisfactory performance and unauthorized absence by operational creditor.- Adjudication on the maintainability of the application based on pre-existing disputes.Analysis:1. The petitioner, an operational creditor, filed a petition under section 9 of The Insolvency and Bankruptcy Code, 2016, alleging non-payment of salary by the respondent corporate debtor. The petitioner claimed entitlement to fixed and variable salaries as per the offer letter, amounting to a total outstanding due of &8377; 9,24,333.2. The respondent disputed the claim, alleging unsatisfactory performance and unauthorized absence by the petitioner, leading to a delay in project completion. The respondent argued that the petitioner had not adhered to the agreed terms and conditions of employment, resulting in non-payment of salary from January 2017 onwards.3. The Adjudicating Authority examined the evidence presented by both parties and found a pre-existing dispute regarding the performance and contribution of the petitioner. It was established that the claim was not crystallized, lacking clarity on the default date and the exact amount due, essential for initiating insolvency proceedings.4. Citing the case of Mobilox Innovations (P.) Ltd. v. Kirusa Software (P.) Ltd., the Authority emphasized that the Insolvency and Bankruptcy Code is not meant to substitute a recovery forum and cannot be invoked in the presence of a genuine dispute. The objective of the Code is to facilitate timely resolution of insolvency and bankruptcy cases to promote entrepreneurship and balance the interests of stakeholders.5. Consequently, the Adjudicating Authority dismissed the application, ruling it devoid of merit due to the existence of pre-existing disputes regarding project delays and performance issues. The decision highlighted that the petitioner could seek recourse through appropriate forums to enforce the claim against the respondent, emphasizing the importance of resolving disputes outside the insolvency framework for effective legal resolution.6. The judgment underscores the significance of establishing a clear debt obligation and default date in insolvency cases, reiterating the Code's purpose of efficient resolution while balancing stakeholder interests. The dismissal of the application on maintainability grounds underscores the need for clarity and resolution of disputes before invoking insolvency proceedings.