2021 (2) TMI 89 - AT - Insolvency and Bankruptcy

Pre-existing Dispute Bars Insolvency Application under Section 9

The Tribunal upheld the Adjudicating Authority's decision, ruling that the existence of a pre-existing dispute barred the admission of the insolvency ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - pre-existing dispute or not - HELD THAT:- From the facts and records it is emphatically clear that there exists a dispute between the parties which are prior to issuance of Demand Notice. Neither the Adjudicating Authority nor this Appellate Tribunal, in summary jurisdiction, can go into those issues which otherwise require a regular trial - it is clear that the moment there is an existence of dispute, the Corporate Debtor gets out of clutches of the rigour of the Court. Further, the adequacy of dispute is only to be seen where the dispute raised by the Corporate Debtor specify as a dispute as defined under Section 5(6) of IBC. There is a record of dispute existing between the parties prior to issuance of Demand Notice and prior to filing of Section 9 Application. Hence, the same cannot be either entertained by the Adjudicating Authority or this Tribunal in a Summary Proceeding as held by the Hon’ble Supreme Court in the matter of Mobilex Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd. [2017 (9) TMI 1270 - SUPREME COURT]. There are no reason to interfere with the order passed by the Adjudicating Authority - appeal dismissed. Issues Involved:1. Existence of dispute prior to notice.2. Barred by limitation.Issue-Wise Detailed Analysis:1. Existence of Dispute Prior to Notice:The core issue revolves around whether a dispute existed between the parties before the initiation of the insolvency proceedings. The Appellant, acting as an Operational Creditor, filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) against the Respondent, a News Print Limited company. The Respondent argued that there was a pre-existing dispute regarding the services rendered by the Appellant, which was acknowledged by the Appellant in emails dated 08.07.2010 and 16.07.2010. These emails indicated that the Appellant agreed to absorb certain costs due to delays in service. The Adjudicating Authority noted that the dispute was raised before the filing of the insolvency application, as evidenced by the Counter Affidavit filed by the Respondent on 26.09.2011 in the High Court of Andhra Pradesh. The Respondent claimed substantial business losses due to the Appellant's delays and had to engage another agent, incurring additional costs. The Tribunal concluded that the existence of a dispute prior to the notice was valid, as supported by the Supreme Court's judgment in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd. (2018) 1 SCC 353, which mandates that any pre-existing dispute must be considered before admitting an insolvency application.2. Barred by Limitation:The Respondent contended that the application was barred by limitation. However, the Tribunal clarified that the proceeding was transferred from the High Court of Andhra Pradesh to the NCLT, Hyderabad, by an order dated 18.07.2018. The Adjudicating Authority correctly held that since the matter was transferred within the permissible time frame, the question of limitation did not arise. The Tribunal affirmed this view, rejecting the Respondent's argument on limitation.Conclusion:The Tribunal upheld the Adjudicating Authority's decision, confirming that the existence of a pre-existing dispute barred the admission of the insolvency application under Section 9 of IBC. The Tribunal emphasized that the existence of a dispute prior to the issuance of the demand notice or the filing of the application precludes the initiation of insolvency proceedings. Consequently, the appeal was dismissed as devoid of merits, with no order as to costs.