2020 (6) TMI 282 - Tri - Insolvency and Bankruptcy

Invalid Claims Lead to Rejection of Insolvency Application Under Section 9

Mr. Damodar Muddukrishna Versus M/s. Cygilant (India) Research & Development Private Limited

The Tribunal found the application under Section 9 of the I&B Code not maintainable due to a pre-existing dispute between the parties and the ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment - existence of Operational Debt and amount in default - HELD THAT:- This is an Application filed U/s.9 of the Code. According to the provisions of Sec.8 and 9, for initiation of resolution process U/s.9, the Applicant must send a demand notice, to which the Corporate Debtor should reply within 10 days brining to the attention of the Applicant either (a) existence of a dispute or record of pendency of suit or arbitration proceedings filed before receipt of such notice or (b) the payment of unpaid operational debt by placing evidence of payment. In the instant case, notices U/s.8 were served on 31.08.2019/04.09.19, which was replied to by the Corporate Debtor herein on 12.09.2019. In the reply, it has been contended that all terminal benefits as per terms of employment of the Applicant herein had already been paid and that the claim made by the Operational Creditor in the Demand Notice is not payable in law and is also disputed. This Adjudicating Authority observes that there is evidence on record in the form of the e-mail correspondence which indicates that there was pre-existence of dispute between the Applicant and Respondent in respect of the claims made by the Applicants - Since there exists a real dispute between the Applicant and Respondents in respect of claims, we are not inclined to admit this Application, and the same is hereby rejected. Application dismissed. Issues Involved:1. Whether the application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) is maintainable.2. Whether there exists a pre-existing dispute between the parties.3. Whether the claims made by the Operational Creditor are valid and payable.Issue-wise Analysis:1. Maintainability of the Application under Section 9 of the I&B Code:The application was filed by the Operational Creditor under Section 9 of the I&B Code, 2016, seeking the initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor for the recovery of an operational debt amounting to Rs. 1,33,79,896/-. The Operational Creditor issued demand notices under Form 3 and Form 4 dated 31.08.2019 and 04.09.2019, respectively, which were served on the Corporate Debtor. The Corporate Debtor responded to these notices on 12.09.2019, disputing the claims and stating that all terminal benefits had already been paid. The Tribunal considered these facts and referenced the Supreme Court's decision in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited, which states that the IBC is not a substitute for a recovery forum and cannot be invoked in the presence of a real dispute. Consequently, the Tribunal found the application not maintainable and rejected it.2. Pre-existing Dispute:The Corporate Debtor argued that there was a pre-existing dispute regarding the amounts claimed by the Operational Creditor. The Tribunal reviewed multiple email correspondences exchanged between the parties from June 2019, which indicated that the claims were strongly disputed by the Corporate Debtor even before the receipt of the demand notice under Section 8 of the I&B Code. The Tribunal cited the Supreme Court's judgment in Transmission Corporation of Andhra Pradesh Limited vs. Equipment Conductors and Cables Limited, which held that the existence of a real dispute precludes the invocation of IBC provisions. Based on the evidence of pre-existing disputes, the Tribunal concluded that the application could not be admitted.3. Validity and Payability of Claims:The Operational Creditor claimed various amounts under different heads, including gratuity, compensation, additional compensation, and legal costs, totaling Rs. 1,33,79,896/-. The Corporate Debtor contended that the Operational Creditor's employment commenced on 15 December 2008 and was terminated on 13 June 2019 due to business restructuring. The Corporate Debtor asserted that all dues, including one month's notice pay, salary till the termination date, gratuity, and leave encashment, totaling Rs. 22,50,599/-, had been duly paid. The Tribunal examined the termination letter and the payments made, finding that the amounts specified in the termination letter were consistent with the terms of employment and applicable laws. The Tribunal also noted that the Operational Creditor's claims for additional amounts were arbitrary, frivolous, and unsupported by the terms of employment or law. Therefore, the Tribunal held that the claims made by the Operational Creditor were not valid and payable.Conclusion:The Tribunal concluded that the application under Section 9 of the I&B Code was not maintainable due to the existence of a pre-existing dispute and the lack of validity and payability of the claims made by the Operational Creditor. The application was rejected, and no order as to costs was made.