NCLAT sets aside CIRP initiation, remits to NCLT for costs.

The National Company Law Appellate Tribunal (NCLAT) found a pre-existing dispute between the parties regarding service deficiency. The NCLT's order initiating the Corporate Insolvency Resolution Process (CIRP) was set aside, releasing the Corporate Debtor from CIRP. The matter was remitted to the NCLT to determine CIRP fees and costs, to be borne by the Operational Creditor. The appeal was allowed without costs.

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Issues Involved:
1. Pre-existing Dispute: Whether there was a pre-existing dispute regarding the deficiency of goods and services provided by the Operational Creditor.
2. Maintainability of Application under Section 9 of IBC: Whether the application for initiating Corporate Insolvency Resolution Process (CIRP) was maintainable given the alleged pre-existing disputes.
3. Adjudication by NCLT: Whether the National Company Law Tribunal (NCLT) correctly adjudicated the matter considering the facts and law.

Detailed Analysis:

Pre-existing Dispute:
The Appellant argued that there was a pre-existing dispute regarding the quality and efficiency of the services provided by the Operational Creditor. The Corporate Debtor had placed a work order for a boom pump, which was found to be deficient and defective from the inception. The Appellant raised multiple complaints about the frequent breakdowns and unprofessional approach of the Operational Creditor through various correspondences, including emails and messages dated 31-10-2017, 25-12-2017, 26-12-2017, and 7-1-2018. The Appellant also claimed that the Operational Creditor maliciously stopped the machine to pressurize the Corporate Debtor, resulting in losses. The Operational Creditor, however, denied these allegations and maintained that the service was provided as agreed, with only 8.5 days consumed for maintenance out of 92 days of service.

Maintainability of Application under Section 9 of IBC:
The Appellant objected to the maintainability of the application under Section 9 of the IBC, arguing that the invoices forming the basis of the Operational Debt were different from those in the demand notice under Section 8 of the IBC. The Appellant contended that the disputes were raised during the subsistence of the work order and were communicated to the Operational Creditor through various modes. The Operational Creditor, on the other hand, argued that the disputes were hypothetical and illusory, and that the Appellant had admitted to an outstanding amount of Rs. 6,35,000 through a WhatsApp message dated 30-11-2018. The Operational Creditor also stated that the amount was settled at Rs. 1,56,076, but the Appellant failed to honor this commitment.

Adjudication by NCLT:
The NCLT admitted the application under Section 9 of the IBC and initiated the CIRP against the Corporate Debtor. However, upon appeal, it was found that the NCLT did not consider the pre-existing disputes adequately. The exchange of emails between the parties clearly established that there was a pre-existing dispute regarding the services rendered. The Supreme Court's judgment in "Mobilox Innovations Private Limited v. KIRUSA Software Pvt. Ltd." was cited, which emphasizes that the existence of a dispute must be pre-existing before the receipt of the demand notice or invoice.

Conclusion:
The National Company Law Appellate Tribunal (NCLAT) concluded that there was indeed a pre-existing dispute between the parties regarding the deficiency of services. The NCLT failed to consider these disputes in its correct perspective before passing the impugned order. Consequently, the NCLAT set aside the NCLT's order dated 8-11-2019, released the Corporate Debtor from the CIRP, and remitted the matter back to the NCLT to decide the fee and costs of the CIRP, which shall be borne by the Operational Creditor. The appeal was allowed, and no costs were imposed.

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