2021 (1) TMI 932 - Tri - Insolvency and Bankruptcy

Tribunal Denies Insolvency Application Citing Pre-existing Dispute. Applicant's Rights Preserved.

The Tribunal rejected the application to initiate the Corporate Insolvency Resolution Process under section 9 of the Insolvency and Bankruptcy Code, 2016, ... Pre-existing dispute - maintainability of an application under section 9 of the Insolvency and Bankruptcy Code, 2016 - demand notice under section 8 of the Insolvency and Bankruptcy Code, 2016 - initiation of Corporate Insolvency Resolution Process - jurisdiction of the Adjudicating AuthorityPre-existing dispute - maintainability of an application under section 9 of the Insolvency and Bankruptcy Code, 2016 - demand notice under section 8 of the Insolvency and Bankruptcy Code, 2016 - Existence of a pre-existing dispute between the parties which renders the Section 9 application unsustainable. - HELD THAT: - The Tribunal examined the correspondence between the parties and observed communications, including emails dated 8-8-2018 and subsequent exchanges, that disclosed a dispute antecedent to the demand notice sent by the Operational Creditor. Applying the settled principle that an adjudicating authority must reject a Section 9 application where a pre-existing dispute is discernible, the Tribunal held that the dispute was not a mere afterthought raised in response to the demand notice but was already in existence prior to issuance of the demand notice. In view of that pre-existing dispute, the application under Section 9 seeking initiation of CIRP was not maintainable and had to be rejected. The Tribunal clarified that this conclusion is confined to maintainability at this stage and that observations made would not prejudice the parties' rights before other fora. [Paras 23, 24]Application under Section 9 dismissed for lack of maintainability due to a pre-existing dispute.Jurisdiction of the Adjudicating Authority - Whether the Tribunal has jurisdiction to entertain the Section 9 application. - HELD THAT: - The Tribunal noted the registered office of the Corporate Debtor is located in New Delhi and recorded that the Tribunal accordingly has jurisdiction to entertain and try the application. [Paras 26]Tribunal has jurisdiction to entertain and try the application.Final Conclusion: The Section 9 application seeking initiation of CIRP was dismissed on the ground that a pre-existing dispute between the parties was established from the correspondence, while the Tribunal retained that it had jurisdiction to hear the matter; observations are confined to this order and do not prejudice the parties' rights before other forums. Issues Involved:1. Validity of the termination of the Consultancy Agreement.2. Entitlement to professional fees and notice period dues.3. Pre-existing dispute between the parties.4. Jurisdiction of the Tribunal.Detailed Analysis:1. Validity of the termination of the Consultancy Agreement:The Operational Creditor was hired by the Corporate Debtor as an Independent Consultant under a Consultancy Agreement dated 1-4-2018. The agreement stipulated a consultancy fee of Euro 6600 per month. The Operational Creditor resigned on 4-7-2018, which was accepted by the Corporate Debtor on 4-8-2018. However, the Corporate Debtor terminated the agreement on 12-8-2018, citing gross misconduct related to the handling of an ex-employee's exit, which included the deletion of confidential data. The Corporate Debtor argued that this misconduct justified the immediate termination of the agreement without further payment obligations.2. Entitlement to professional fees and notice period dues:The Operational Creditor claimed that she was entitled to professional fees for the notice period as per clause 10.4 of the Consultancy Agreement, which required a 180-business-day notice before termination. She raised an invoice for Rs. 33,46,992 for the notice period from August 2018 to January 2019. The Corporate Debtor, however, refused to pay, arguing that the termination was justified due to the alleged misconduct and thus waived the notice period without liability for further payments.3. Pre-existing dispute between the parties:The Corporate Debtor contended that there was a pre-existing dispute before the issuance of the demand notice on 27-10-2018. The Tribunal noted that various correspondences, including emails dated 8-8-2018, 12-8-2018, and 7-9-2018, indicated an ongoing dispute related to the alleged misconduct of the Operational Creditor. The Tribunal referred to the Supreme Court's judgment in 'Innoventive Industries Ltd. v. ICICI Ltd.' and 'Mobilox Innovations (P.) Ltd. v. Kirusa Software (P.) Ltd.,' which held that a pre-existing dispute raised before the demand notice cannot be ignored.4. Jurisdiction of the Tribunal:The Tribunal confirmed its jurisdiction to entertain and try the application as the registered office of the respondent is situated in New Delhi.Conclusion:The Tribunal found that there was a pre-existing dispute between the parties, which was evident from the correspondences exchanged before the demand notice was issued. As a result, the application to initiate the Corporate Insolvency Resolution Process (CIRP) under section 9 of the Insolvency and Bankruptcy Code, 2016, was rejected and dismissed. The Tribunal clarified that the observations made in the order should not prejudice the applicant's rights before any other forum.