2020 (10) TMI 169 - Tri - Insolvency and Bankruptcy

Dismissal of Insolvency Application Due to Pre-Existing Dispute: Real vs. Spurious Dispute Requirement

Magnum Steels Ltd. Versus Collage Group Infrastructure Pvt. Ltd.

The application under section 9 of the Insolvency and Bankruptcy Code was dismissed by the Tribunal as it found that a pre-existing dispute existed ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - HELD THAT:- The reply dated 19.01.2018 sent by the corporate debtor, brings on record a dispute raised and existed between the parties prior to the issuance of the section 8 demand notice. There is thus force in the contention of the corporate debtor and it can be concluded that a dispute does truly exist between the parties in terms of section 5(6)(b) in the present case, which may or may not ultimately succeed but requires trial/investigation. Though this is not the forum to examine and adjudicate as to which portion of the claims or counter claims are admissible. Tribunal will not examine the merits of the dispute other than to see if there is in fact exist a 'real dispute' having some substance. There is 'Pre-existence dispute' which was raised by the corporate debtor prior to the notice served under section 8 of I & B Code. It is a fit case to reject the application under section 9 of the I & B Code - Application dismissed. Issues:Application under section 9 of Insolvency and Bankruptcy Code, 2016 for initiating Corporate Insolvency process against a private limited company - Dispute regarding payment between the parties - Existence of pre-existing dispute prior to the issuance of the demand notice under section 8 of the Code.Analysis:The Applicant, a limited company, filed an application under section 9 of the Insolvency and Bankruptcy Code, 2016 against the Corporate Debtor, a private limited company, for non-payment of dues amounting to Rs. 91,82,988 for steel supplies made for a project. The Applicant maintained a running account of the transactions and issued a legal notice when payment was not received. The Corporate Debtor raised a dispute regarding the debt, alleging delays in supply causing losses and referring to income tax demands on the Applicant. The Applicant denied these claims in its rejoinder.The Tribunal examined the documents and found that a dispute existed between the parties prior to the issuance of the demand notice under section 8 of the Code. Citing the Supreme Court case of 'Mobilox Innovative Private Limited vs. Kirusa Software Private Limited,' the Tribunal emphasized that the existence of a real dispute, not a spurious one, is crucial at this stage. The Court clarified that the merits of the dispute are not to be examined, but only whether a plausible contention necessitating further investigation exists.Based on the facts presented, the Tribunal concluded that a pre-existing dispute was raised by the Corporate Debtor before the notice under section 8 of the Code was served. Therefore, the application under section 9 of the Insolvency and Bankruptcy Code was dismissed. The Registry was directed to communicate the order to both parties, forward a copy to IBBI for records, and send another copy to ROC for updating the Master Data, with ROC required to provide a compliance report to the Registrar, NCLT.