2020 (10) TMI 914 - AT - Insolvency and Bankruptcy

Appellate Tribunal Quashes CIRP Initiation, Emphasizes Pre-existing Dispute Consideration

The Appellate Tribunal set aside the Impugned Order, quashed the initiation of Corporate Insolvency Resolution Process (CIRP), and released the Corporate ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - HELD THAT:- From the perusal of e-mail /correspondences between the Appellant/Corporate Debtor and Respondent/Operational Creditor, it is the case of the Appellant/Corporate Debtor that the Respondent has not completed the project in time thereby the Project was got delayed thereby they suffered losses. On the other side, the stand of Respondent/Operational Creditor that they have completed the Project and handed over to the Appellant/Corporate Debtor, however, Appellant/Corporate Debtor failed to pay bills even after complete of the project. It is unequivocal that there exists dispute between the parties prior to the issuance of Demand Notice dated 11.04.2019 - the learned Adjudicating Authority instead of taking a technical objection that the Appellant/Corporate Debtor has not replied to the Demand Notice issued by the Respondent/Operational Creditor within statutory period of 10 days as contemplated under Section 8(2) of IBC, should have analysed the documents placed before it, before taking such objection. Thus, the correspondences i.e., e-mail/letters show that there is existence of disputes prior to issuance of Demand Notice - Exchange of e-mails/correspondences, as referred above, clearly establishes that there is a pre-existing dispute between the parties regarding completion of the work and the Appellant/Corporate Debtor continuously made complaints regarding non-completion of work and deficiency in services, thereby loss caused to the Appellant/Corporate Debtor. Therefore, it is quite clear that there is pre-existing of dispute regarding completion of the work and the learned Adjudicating Authority ought not to have admitted the Application under Section 9 of IBC filed by the Respondent/ Operational Creditor. Even in the Reply filed by the Appellant/Corporate Debtor before the learned Adjudicating Authority pursuant to Section 9 Application, it is quite clear that there was sufficient material produced before the learned Adjudicating Authority and the learned Adjudicating Authority ought to have considered the materials placed before it - thus, the learned Adjudicating Authority should have considered the substantial material placed before it in its correct perspective, before passing the Impugned Order dated 04.06.2020 thus committed error. It is re-iterated that the Code is a beneficial legislation intended to put the Corporate Debtor on its feet and it is not a mere money recovery legislation for the Creditors. Initiation of CIRP set aside - matter is remitted back to the Adjudicating Authority to decide Fee and Cost of CIRP which shall be payable to Interim Resolution Professional/Resolution Professional by the Respondent/Operational Creditor - appeal allowed. Issues Involved:1. Pre-existing dispute between Corporate Debtor and Operational Creditor.2. Compliance with statutory requirements under Section 8(2) of IBC.3. Adjudicating Authority's consideration of substantial material and precedents.Detailed Analysis:1. Pre-existing Dispute Between Corporate Debtor and Operational Creditor:The core issue was whether a pre-existing dispute existed prior to the issuance of the Demand Notice dated 11.04.2019. The Corporate Debtor argued that there were several instances of disputes communicated through emails dated 04.10.2018, 01.11.2018, and 04.12.2018, which highlighted inefficiencies and deficiencies in the work executed by the Operational Creditor. The Appellate Tribunal examined these correspondences and concluded that there was unequivocal evidence of disputes regarding the completion and quality of work before the Demand Notice was issued. This was supported by various emails and a report from IM Cost Management Private Limited, which pointed out deficiencies and incomplete work.2. Compliance with Statutory Requirements Under Section 8(2) of IBC:The Adjudicating Authority had admitted the application under Section 9 of IBC on the ground that the Corporate Debtor did not reply to the Demand Notice within the statutory period of 10 days as required under Section 8(2) of IBC. The Corporate Debtor contended that although a formal reply to the Demand Notice was not given, the pre-existing disputes were communicated through various emails and correspondences. The Appellate Tribunal noted that the Adjudicating Authority should have considered these communications as evidence of pre-existing disputes, rather than taking a technical view of the statutory requirement.3. Adjudicating Authority's Consideration of Substantial Material and Precedents:The Appellate Tribunal criticized the Adjudicating Authority for not considering the substantial material and precedents that indicated a pre-existing dispute. The Tribunal referred to the Supreme Court's decisions in 'Mobilox Innovations Private Limited vs. Kirusa Software Private Limited' and 'Innoventive Industries Ltd. Vs. ICICI Bank and Anr.', which clearly state that the existence of a dispute must be considered if it is brought to notice before the receipt of the Demand Notice. The Tribunal emphasized that the Adjudicating Authority should have analyzed the documents and correspondences to determine the existence of a dispute rather than focusing solely on the technical non-compliance of replying to the Demand Notice.Conclusion:The Appellate Tribunal set aside the Impugned Order dated 04.06.2020, quashed the initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, and released the Corporate Debtor from the rigour of CIRP. The matter was remitted back to the Adjudicating Authority to decide the fee and cost of CIRP payable to the Interim Resolution Professional/Resolution Professional by the Operational Creditor. The Tribunal reiterated that the IBC is a beneficial legislation intended to put the Corporate Debtor on its feet and not merely a money recovery tool for creditors.