2020 (10) TMI 442 - Tri - Insolvency and Bankruptcy

Tribunal Denies CIRP Application Due to Pre-Existing Dispute

The Tribunal dismissed the application for initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, citing the existence of ... 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 Corporate Debtor vide notice dated 05.05.2018, in reply to the Legal Notice issued by the Operational Creditor, has categorically stated that the Operational Creditor has not completed the implementation of the software as required by the Corporate Debtor at the time of placing the work order and also point out certain lapses which are attributable on the part of the Operational Creditor in completion of the installation of the 'DOCC 99' Software and the same was not done to the satisfaction of the Corporate Debtor. There exists a 'dispute' between the parties before the issuance of the Demand Notice itself and the defence raised by the Corporate Debtor on the grounds of existence of a dispute cannot be considered as spurious, hypothetical, illusory or misconceived. Further, the filing of C.S. No. 563 of 2018 which came to be transferred to Additional City Civil Court and renumbered as O.S. No. 2545 of 2019, which is pending before the appropriate Civil Court demonstrates that the Operational Creditor is also not remediless and the pending proceedings itself shows that there is a pre - existing dispute between the parties. This Tribunal in exercise of summary jurisdiction cannot also venture as to whether installation of the concerned software was done properly and whether it is working, all of which the Civil Court will be in a position to ascertain based on oral evidence, if found necessary. Application dismissed. Issues Involved:1. Whether there exists any 'dispute' between the parties before the issuance of the Demand Notice by the Operational Creditor under Section 8 of the IBC, 2016.2. Whether the Corporate Debtor has raised a valid pre-existing dispute regarding the services rendered by the Operational Creditor.3. Whether the application for initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor is maintainable.Issue-wise Detailed Analysis:1. Existence of Dispute Before Issuance of Demand Notice:The primary issue to be determined is whether there was a pre-existing dispute between the parties before the issuance of the Demand Notice by the Operational Creditor under Section 8 of the Insolvency & Bankruptcy Code, 2016 (IBC, 2016). The Tribunal noted that the Corporate Debtor, in its reply notice dated 05.05.2018, raised several issues regarding the incomplete implementation of the software by the Operational Creditor. The Corporate Debtor highlighted specific lapses in the software installation, such as the failure to provide functionalities like waiting patients information display, e-prescription, and online diagnostic requests and results. These issues were raised before the issuance of the Demand Notice, indicating a pre-existing dispute.2. Validity of Pre-existing Dispute:The Corporate Debtor contended that it had raised disputes regarding the services rendered by the Operational Creditor even before the issuance of the Demand Notice. The Corporate Debtor had also filed a Civil Suit (C.S. No. 563 of 2018, later renumbered as O.S. No. 2545 of 2019) seeking recovery of the advance amount paid and damages, which was pending adjudication. The Tribunal referred to the judgment of the Hon'ble Supreme Court in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software (P) Limited, which held that the existence of a dispute must be pre-existing before the receipt of the Demand Notice. The Tribunal found that the dispute raised by the Corporate Debtor was not spurious, hypothetical, illusory, or misconceived, and thus, a valid pre-existing dispute existed.3. Maintainability of Application for CIRP:Given the existence of a pre-existing dispute, the Tribunal had to determine whether the application for initiating the CIRP against the Corporate Debtor was maintainable. The Tribunal highlighted that the pending Civil Suit demonstrated that the Operational Creditor was not remediless and that the appropriate forum to ascertain the issues related to the software installation was the Civil Court. The Tribunal, exercising its summary jurisdiction, could not delve into the detailed examination of whether the software installation was done properly and whether it was functioning as required.Conclusion:The Tribunal concluded that there existed a pre-existing dispute between the parties before the issuance of the Demand Notice. The defence raised by the Corporate Debtor was found to be plausible and required further investigation. Consequently, the Tribunal dismissed the application for initiating the CIRP against the Corporate Debtor, without costs.