Tribunal Upholds Rejection of Creditor's Application under Insolvency Code

The Tribunal upheld the Adjudicating Authority's decision to reject the Operational Creditor's application under Section 9 of the Insolvency and Bankruptcy Code 2016 due to a pre-existing dispute and non-compliance with Section 9(3)(b) of the Code. The Tribunal dismissed the appeal, emphasizing the lack of justification for overturning the rejection and found no grounds for interference with the impugned order. No costs were awarded in the matter.

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Issues:
- Rejection of Application under Section 9 of the Insolvency and Bankruptcy Code 2016 by the Adjudicating Authority
- Grounds of rejection: pre-existing dispute and non-compliance with Section 9(3)(b) of the Code

Analysis:

1. The appeal arose from the Adjudicating Authority's order rejecting the Operational Creditor's application under Section 9 of the Insolvency and Bankruptcy Code 2016. The dispute involved an outstanding amount of Rs. 63,29,169 owed by the Corporate Debtor for services rendered by the Applicant from September 2013 to January 2017.

2. The Applicant contended that despite raising invoices, the Respondent failed to clear the debt. The Respondent acknowledged the debt in an email dated March 10, 2017, admitting an outstanding amount of Rs. 53,83,299. However, no payment was made despite this acknowledgment.

3. The Adjudicating Authority rejected the application citing a pre-existing dispute and non-compliance with Section 9(3)(b) of the Code. The Applicant argued that the compliance under Section 9(3)(b) was not mandatory and challenged the rejection on the grounds of a pre-existing dispute before receiving the demand notice.

4. The Adjudicating Authority emphasized the importance of the demand notice in Form-4, issued on March 20, 2019, and delivered on March 23, 2019. The Respondent's responses to the demand notice highlighted a pre-existing dispute, as evidenced by email correspondence from January 2018 and April 2018.

5. Citing the judgment in Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., the Operational Creditor argued that a genuine dispute existed, requiring further investigation. The Corporate Debtor had disputed the claims before the application under Section 9 was filed, and the Adjudicating Authority rejected the application mainly on the ground of a pre-existing dispute.

6. The Operational Creditor failed to file an affidavit as per Section 9(3)(b) of the Code, which requires a statement confirming no notice of dispute from the Corporate Debtor. However, the Supreme Court clarified that such an affidavit is not mandatory if the Corporate Debtor responds to the demand notice within 10 days, as seen in Macquarie Bank v. Shilpi Cable Technologies Ltd.

7. The Corporate Debtor had raised concerns about the quality of service and informed the Operational Creditor that services were no longer required, a year before the demand notice was issued. Considering these factors, the Tribunal upheld the Adjudicating Authority's decision to reject the application under Section 9 of the Code.

8. The Tribunal found no grounds for interference with the impugned order and dismissed the appeal, emphasizing the lack of justification for overturning the rejection. No costs were awarded in the matter.

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