2021 (5) TMI 310 - Tri - Insolvency and Bankruptcy

Application Dismissed Due to Pre-existing Dispute: Importance of Substantiated Claims & Clear Evidence

The Tribunal dismissed the application under Section 9 of the Insolvency & Bankruptcy Code, 2016 due to the existence of a pre-existing dispute ... Pre-existing dispute - Operational Creditor application under Section 9 of the Insolvency & Bankruptcy Code, 2016 - adjudicating authority's power to reject an application under Section 9(5)(2)(d) - Mobilox test for existence of a dispute - requirement of debt and defaultPre-existing dispute - Mobilox test for existence of a dispute - requirement of debt and default - Whether the Section 9 application by the Operational Creditor is maintainable in view of a pre-existing dispute between the parties. - HELD THAT: - The Tribunal examined the purchase order, invoices, ledger entries and correspondence and found material showing an unresolved dispute as to quantity and adjustment of excess materials. The purchase order expressly provided for quantity tolerance (plus or minus 5%) and the respondent had communicated that excess materials were lying and asked the applicant to take them back. The applicant claimed a specific sum as debt but failed to satisfactorily quantify the debt and the default in light of the admitted scope for post-supply adjustments. Applying the principle in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., the Tribunal held that where there is a plausible pre-existing dispute (not a patently feeble or spurious defence) the Adjudicating Authority must reject the Section 9 application under the provision permitting rejection on account of a pre-existing dispute. The Tribunal concluded that the dispute disclosed on the record required further investigation and was sufficient to bar initiation of CIRP on the present application. [Paras 5, 6, 7]The Section 9 application is dismissed because a pre-existing dispute exists and the debt/default have not been shown to be undisputed and due.Final Conclusion: The application under Section 9 by the Operational Creditor seeking initiation of CIRP is dismissed on the ground that a plausible pre-existing dispute exists between the parties, rendering the claim of undisputed debt and default untenable. Issues:1. Application filed under Section 9 of the Insolvency & Bankruptcy Code, 2016 seeking initiation of Corporate Insolvency Resolution Process.2. Dispute regarding non-payment between Operational Creditor and Corporate Debtor.3. Existence of pre-existing dispute between the parties affecting the admission of the application.Analysis:1. The judgment pertains to an application filed under Section 9 of the Insolvency & Bankruptcy Code, 2016 by an Operational Creditor against a Corporate Debtor seeking initiation of Corporate Insolvency Resolution Process. The Operational Creditor alleged non-payment by the Corporate Debtor for supplied materials, leading to a total claim of Rs. 20,13,146. The Corporate Debtor contested these claims, citing ongoing business transactions since 2008 and disputing the quantity supplied, as well as asserting an agreement for return of excess goods. The Purchase Order and related documents formed crucial evidence in this dispute.2. The key contention revolved around the existence of a pre-existing dispute between the parties. The Respondent Corporate Debtor argued that discrepancies in quantity supplied were addressed through return of excess goods, as agreed upon in their business dealings. The Applicant Operational Creditor failed to quantify the debt amount accurately, leading to a lack of clarity regarding the actual default. The Tribunal referred to the case law of Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd., emphasizing the necessity of a genuine dispute notice to the Operational Creditor before admitting such insolvency applications. The absence of a clear debt amount and the presence of a pre-existing dispute were crucial factors in dismissing the application.3. Considering the submissions from both parties, the Tribunal carefully analyzed the Purchase Order terms, the alleged debt amount, and the documented communications between the parties. It was observed that the dispute regarding the quantity supplied and the return of excess goods created a genuine contention, indicating the presence of a pre-existing dispute that required further investigation. As per the legal precedent cited, the Tribunal dismissed the application, highlighting the importance of substantiated claims and genuine disputes in insolvency proceedings. The judgment underscores the significance of clear evidence and quantification of debt in insolvency applications to ensure fair adjudication and protection of the parties' rights.