Appellate Tribunal overturns dismissal of insolvency application, directs case for admission under Section 9 of IBC

The Appellate Tribunal set aside the Adjudicating Authority's decision to dismiss the application under Section 9 of the Insolvency and Bankruptcy Code. The Tribunal found that the operational debt exceeded Rs. 1 lakh, and there was no pre-existing dispute regarding the claimed amount. Citing relevant case law, the Tribunal concluded that the Respondent defaulted on payments and directed the case to be remitted to the Adjudicating Authority for admission under Section 9 of the IBC. The appeal was allowed with no costs, and the parties were instructed to appear before the Authority for further proceedings.

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Issues Involved:
1. Whether the Appellant established the existence of an operational debt owed by the Respondent.
2. Whether there was a pre-existing dispute regarding the claimed debt.
3. Whether the Adjudicating Authority erred in dismissing the application under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016.

Issue-wise Detailed Analysis:

1. Existence of Operational Debt:
The Appellant, a company engaged in the wholesale trading of paper, claimed that the Respondent owed it a substantial amount for goods supplied on credit. The Appellant maintained a running account and applied payments using the FIFO rule. It was asserted that as of 31.03.2018, the outstanding amount was Rs. 2,39,80,892. The Respondent, however, disputed portions of this amount, alleging manipulations by the Appellant. The Appellant presented various emails and statements, including an email dated 08.10.2016, where the Respondent confirmed the closing balance for the period ending 30.09.2016. Despite the Respondent's objections, the Appellant provided evidence of the operational debt through consistent account statements and communications.

2. Pre-existing Dispute:
The Respondent argued that the Appellant manipulated bills and account statements, citing a letter dated 13.09.2018 where the Appellant requested confirmation on 166 bills. The Respondent claimed these bills were raised without their knowledge. The Respondent also highlighted that the Appellant did not submit account statements for earlier financial years (2013-2017), which could indicate a pre-existing dispute. However, the Appellant countered by presenting emails where the Respondent had confirmed account balances and did not dispute the operational debt prior to the statutory demand notice.

3. Adjudicating Authority's Decision:
The Adjudicating Authority dismissed the application under Section 9 of the IBC, stating that the Appellant's inconsistent conduct failed to establish the claimed amount and default by the Respondent. The Authority noted discrepancies in the amounts claimed and admitted by both parties. Despite attempts to reconcile accounts, no resolution was achieved. The Appellant appealed, arguing that the Authority overlooked key evidence, including the Respondent's email confirmations and the absence of any pre-existing dispute.

Findings and Order:
The Appellate Tribunal found that the Adjudicating Authority erred in its judgment. It noted that the operational debt exceeded Rs. 1 lakh, and the Respondent had not disputed this amount prior to the statutory notice. The Tribunal referenced the Supreme Court's rulings in Macquarie Bank Limited Vs. Shilpi Cable Technologies Limited and Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited, emphasizing that the existence of an operational debt and the absence of a pre-existing dispute were sufficient grounds for admitting the application under Section 9 of the IBC. The Tribunal concluded that the Respondent defaulted on payments exceeding Rs. 1 lakh and that the application should have been admitted.

Order:
The Tribunal set aside the impugned order dated 23.08.2019 and remitted the case to the Adjudicating Authority to admit the application under Section 9 of the IBC. The Tribunal directed the parties to appear before the Authority on 15th September 2020 and allowed the Respondent an opportunity to settle the matter before admission. The appeal was allowed with no costs, and the Registry was instructed to communicate the judgment to the Adjudicating Authority and upload it on the Tribunal's website.

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