2020 (10) TMI 585 - Tri - Insolvency and Bankruptcy

Tribunal dismisses insolvency application due to pre-existing dispute, lack of standing, and authorization issue.

The Tribunal rejected the application under Section 9 of the Insolvency & Bankruptcy Code, finding that a pre-existing dispute existed between the ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - whether there is a pre-existing dispute between the Operational Creditor and the Corporate Debtor as alleged? - HELD THAT:- Here in this case the operational creditor had issued demand notice on 4th June, 2019. To the said notice the corporate debtor had given notice of dispute by reply dated 20th June, 2019 as per section 9(5)(ii)(d) of the Code and proved existence of dispute prior to the date of issuance of the demand notice - In the view of the matter, we are unable to hold that Annexure V to XIX copies of e-mails given to the operational creditor by the corporate debtor relied upon by the Ld. Sr. Counsel for the operational creditor evidencing admission of liability by the corporate debtor. As per the terms of the contract, the delay on the side of the operational creditor give rise to a cause of action to the corporate debtor to claim liquidated damage. The Corporate Debtor in the case in hand succeeded in proving existence of disputes. Moreover, the Corporate Debtor also has succeeded in proving that the claim of the Operational Creditor is much prior to the expiry of the warranty period mentioned in the terms and conditions in Annexure-IV. Keeping in view of the matters, facts and circumstances and position of law, it is held that the application is liable to be rejected under section 9(5)(ii)(d) of the Code. Application dismissed. Issues Involved:1. Whether there is a pre-existing dispute between the Operational Creditor and the Corporate Debtor.2. Whether the application under Section 9 of the Insolvency & Bankruptcy Code is maintainable.3. Whether the Operational Creditor has the locus standi to make the claim.4. Validity of the authorization to initiate Corporate Insolvency Resolution Process (CIRP).Detailed Analysis:1. Pre-existing Dispute:The primary issue was whether there was a pre-existing dispute between the Operational Creditor and the Corporate Debtor. The Operational Creditor alleged that the completion of the project was delayed solely due to the Corporate Debtor’s actions, while the Corporate Debtor contended that the Operational Creditor violated several terms of the contract, causing delays and losses. The Tribunal noted that there was substantial correspondence between the parties indicating disputes over delays and performance issues. The emails and letters exchanged between the parties, including those from 2015, demonstrated ongoing disputes. The Tribunal concluded that the existence of these disputes prior to the issuance of the demand notice was proven, thus establishing a pre-existing dispute.2. Maintainability of the Application:The Tribunal examined whether the application under Section 9 of the Insolvency & Bankruptcy Code was maintainable. The Corporate Debtor argued that the application was not affirmed as per the requirements of the IBC, 2016, and that the demand notice was not in accordance with the Rules and Regulations. Additionally, the Corporate Debtor claimed the application was time-barred and should be dismissed. The Tribunal found that the existence of a pre-existing dispute rendered the application under Section 9 inadmissible. The Tribunal referred to the judgments in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited and Vinod Mittal vs. Rays Power Experts Private Limited, which support the view that if a pre-existing dispute is established, the application must be rejected.3. Locus Standi of the Operational Creditor:The Tribunal considered whether the Operational Creditor had the locus standi to make the claim. The Corporate Debtor argued that payments could only be released if reciprocal obligations were fulfilled by the Operational Creditor, including the extension of performance bank guarantees and clearing of punch points. The Tribunal noted that the delay in project completion and the existence of disputes over performance and payments indicated that the Operational Creditor did not have a clear right to the claimed amounts. The Tribunal concluded that the Operational Creditor did not have the locus standi to make the claim under the terms and conditions of the contract.4. Authorization to Initiate CIRP:The Tribunal examined the validity of the authorization given to Mr. Sukhvir, the Company Secretary, to initiate the CIRP. The Corporate Debtor contended that there was no specific authorization as required by law. The Operational Creditor argued that a subsequent resolution dated 13th November 2019 ratified the actions of Mr. Sukhvir, thus curing any defect in the initial authorization. The Tribunal referred to the judgment in Maharashtra State Mining Corporation Vs. Sunil, which supports the view that subsequent ratification can relate back to the date of the initial action. The Tribunal found that the objection regarding the authority was devoid of merit.Conclusion:The Tribunal concluded that the Corporate Debtor successfully proved the existence of disputes prior to the issuance of the demand notice, and thus, the application under Section 9 of the Insolvency & Bankruptcy Code was inadmissible. The Tribunal also found that the Operational Creditor did not have the locus standi to make the claim and that the authorization issue was resolved by subsequent ratification. Consequently, the application was rejected under Section 9(5)(ii)(d) of the Code.