Dismissal of Insolvency Application due to Genuine Dispute; Importance of Plausible Contention

The Adjudicating Authority dismissed the Insolvency and Bankruptcy Application filed by the Operational Creditor against the Corporate Debtor for non-payment of dues. The Authority found evidence of a pre-existing dispute between the parties, emphasizing the necessity of a genuine dispute for rejecting an insolvency application. The Corporate Debtor's contentions regarding the nature of the debt and suppression of facts were considered, leading to the dismissal of the application. The importance of a plausible contention requiring further investigation and the existence of a genuine dispute were highlighted in the decision.

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Issues:
Insolvency and Bankruptcy Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 for initiation of Corporate Insolvency Resolution Process.

Analysis:
The case involved an Insolvency and Bankruptcy Application filed by an Operational Creditor against a Corporate Debtor for non-payment of dues amounting to INR 22,75,514/- along with interest. The Operational Creditor, engaged in supplying medical appliances, claimed that the Corporate Debtor failed to pay for the supplied goods and advances. The Corporate Debtor, a private company manufacturing surgical products, disputed the claim, alleging suppression of facts and pre-existing disputes. The Operational Creditor issued a demand notice, followed by the Corporate Debtor's denial and counterclaim of INR 26,80,000/-. The Operational Creditor then filed an application for Corporate Insolvency Resolution Process (CIRP) due to the debt default.

The Corporate Debtor contended that the claim by the Operational Creditor was not maintainable as it was in the nature of loans and advances, which, according to Section 5(21) of the IB Code, 2016, does not constitute operational debt. The Corporate Debtor also cited a previous ruling by the NCLAT regarding advance payments not being categorized as operational debt. Additionally, the Corporate Debtor claimed that the only payable amount was INR 2,48,845/- for goods supplied, which was time-barred and barred by limitation. Moreover, the Corporate Debtor argued that the Operational Creditor suppressed pre-existing disputes and owed an amount of INR 26.84 lakh to the Corporate Debtor for goods supplied and commissions.

After considering submissions from both parties, the Adjudicating Authority referred to a Supreme Court observation in Mobilox Innovations Private Limited vs. Kirusa Software Pvt. Ltd., highlighting the necessity of a genuine dispute for rejecting an insolvency application. The Adjudicating Authority found evidence of a pre-existing dispute between the parties based on email correspondences and the Corporate Debtor's response to the demand notice. Consequently, the application was dismissed, emphasizing the importance of a plausible contention requiring further investigation and the existence of a genuine dispute. The Adjudicating Authority directed the Registry to communicate the order to the concerned parties promptly.

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